How to Manage Post-College Finances
You went from college student to alumnus in the blink of an eye. Now, as you transition to life on your own, it's wise to adjust your finances for life after college just as quickly. You may long for the days of managing a college budget with a small income and a handful of expenses, but that's no longer your reality. While your first full-time job is likely to provide you with more income, you still need a plan to effectively manage your finances.
Use these tips to help manage your post-college income.
Enroll in a workplace retirement plan.
If your employer provides a 401(k) or similar workplace retirement plan, enroll in it as soon as you are eligible. Plans that offer employer matching can boost your retirement savings balance at no cost to you. Matching amounts vary, but 3-6% is common. The employer's matching amount is considered free money, so don't miss out!
Even if there's no matching option, participate in the plan. Workplace retirement contributions are taken from your paycheck before you receive your net pay, making saving for the future an easy choice. The earlier you start saving for retirement, the more time your deposits can grow tax-free.
Explore other workplace benefits.
Many companies extend perks and expanded benefits to recruit and retain employees. While a signing bonus might grab your attention, don't forget to review other workplace benefits that could help keep more money in your bank account. Besides flexible scheduling and extra vacation days, some employers offer:
- Tuition assistance programs that could help pay for another college degree
- Student loan assistance programs that pay off a percentage of your student loan debt
- Discounted gym memberships to encourage healthy habits that might reduce healthcare costs
Speak with your human resources department to learn about these or other benefits available to employees.
Start an emergency fund.
An emergency fund equal to at least three months of living expenses could cover unexpected costs without affecting your monthly budget or financial goals. For example, instead of using your paycheck or a credit card to pay for a transmission repair or vet bill, the money in your emergency fund offers a smart way to cover the cost.
Build your cash reserve by setting up an automatic bank transfer or direct deposit into a dedicated savings account. Since it takes time to fund your account, stay motivated by setting a smaller goal of $500. Once you achieve that goal, raise it to $1,000. Continue increasing your goal until your fund equals three months of living expenses.
Create a new budget.
Budgeting post-graduation typically requires more attention, especially if your earnings or expenses have increased. Housing, transportation, and student loan payments are typical costs that go up once you're on your own. In addition, building an emergency savings fund should be a top priority — but it can be challenging if you ignore your budget.
If updating your finances is overwhelming, keep it simple with a 50/30/20 budget. This flexible approach to handling your money separates spending into three categories: Needs (50%), Wants (30%), and Savings (20%).
- Needs cover necessary expenses such as rent, food, transportation, student loan payments, etc.
- Wants cover lifestyle desires like vacations, sporting events, eating out, etc.
- Savings cover financial goals such as extra payments to reduce debt or savings for a down payment on a new car
Adjust the percentages to match your goals. For example, if you're saving for a down payment on a new car, increase Savings to 30% and reduce Wants spending to 20%.
Whether you stay at your first job for one year or 10, revisit these tips each time you switch employers or experience a change in income. It could help you thrive financially for years to come.