Smart money-management tips for recent graduates

Stepping out of the classroom and into the workforce is an exciting milestone, but it also comes with new responsibilities. How will you best use your paycheck? New bills, managing student loans, investing for beginners — it’s a lot. Building a strong financial foundation is crucial for your long-term stability, success and well-being. Keep reading for some practical financial advice for new grads like you.

Create a budget: your financial roadmap

A wise first step when the money starts coming in is to create a budget. Think of it as your financial roadmap. A budget helps you track your income and expenses and ensures that you’re living within your means. Get started by simply listing your monthly income, then break down your expenses into categories such as rent, utilities, groceries, transportation and entertainment.

With this method, it’s easier to spot problem areas where you might be overspending. Adjust and keep going — the key to successful budgeting is adhering to it consistently. Regularly review your budget and don’t hesitate to tweak it based on any changes in your income or expenses.

Build an emergency fund: your financial safety net

By now you know that life is unpredictable. An emergency fund is peace of mind, an essential cushion against unexpected expenses such as car repairs, medical bills or sudden unemployment. The rule of thumb is to save at least three to six months’ worth of living expenses.¹

Start small by putting aside a little of your paycheck each month until you reach that goal. Consider setting up automatic transfers from your checking account to a dedicated savings account. You’ll be building your emergency fund without even having to think about it.

Manage student loans: taking control

You’ve invested in yourself with higher education and now it’s time to begin the process of managing your student loans. The key to managing this debt effectively is exploring your repayment options. Review your loan terms to weigh the different repayment plans offered. In the case of federal loans, you might qualify for income-driven repayment plans that adjust your monthly payment based on your income.

If you are able, make extra payments toward your loans to pay them off faster. Even small additional payments can reduce the total interest you’ll pay over the life of the loan. Paying them off faster also improves your debt-to-income ratio (DTI), an important factor lenders look at when considering your financial health.

Understand credit scores: protect your financial future

This little three-digit number is hugely impactful on your financial health. Lenders use your credit score to assess your creditworthiness — a higher score can help you qualify for lower interest rates on loans and credit cards, saving you money in the long run.

To maintain a good credit score, be sure to:

• Pay your bills on time.
• Keep your credit card balances low.
• Avoid opening too many new credit accounts at once.

Keep your eye on your credit report and check it regularly for errors. Dispute any inaccuracies you find to help ensure that your credit score accurately reflects your financial behavior.

Live within your means: resist the splurge

Living within your means is the number one way to stay out of debt. As you start earning a salary, it can be tempting to treat yourself to things you couldn’t afford as a student. Resist the urge by revisiting your financial goals. Be mindful of lifestyle inflation — the tendency to increase your spending as your income grows.

A good trick to control spending is to live by the 50/30/20 rule: Allocate 50% of your income to necessities, 30% to discretionary spending and 20% to savings and debt repayment. This approach helps you balance enjoying your income now while still planning for the future.

Utilize your 401(k): invest in your future

Certainly, retirement feels very far away, but the earlier you start saving, the better off you’ll be when the time comes. If your employer offers a 401(k) plan, full advantage of it, especially if they offer a matching contribution. Employer matching is essentially free money that can significantly boost your retirement savings. Think of your 401(k) as Investing for Beginners 101.

Contributing to your 401(k) as soon as possible gives your investments time to grow through compound interest. If possible, aim to contribute at least enough to get the full employer match — typically around 3% to 6% of your salary.

This is just the beginning!

Think of this pivotal moment as an opportunity to start establishing good financial habits and setting you up for future success. Money management affects all areas of your life, so give yourself the gift of continuing to learn, seek advice and stay on track. The steps you take today will pay off in the years to come.