7 financial moves to make when you graduate college

Written by
Richard Barrington
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Graduating college can be a breathtaking experience. Pride and excitement are often mixed with nervous uncertainty.

More than any other moment, graduation marks a clear separation between adolescence and adult life. It’s the start of a possible new career, and the opportunity to establish your life as an independent person.

A big part of that adult life involves handling finances. The following are seven tips for setting a solid foundation on which to build your personal finances:

1. Decide on the best place to start your new life

A lot of factors go into choosing a place to live, but to a large extent, this is a financial decision.

For example, in U.S. metropolitan areas, the median cost of renting a one-bedroom apartment ranges from $410 a month in Cumberland, Maryland to $2,267 in San Jose, California. Job opportunities for different professions also vary greatly depending on where you look, as do starting salaries.

So, take some time to choose a location whose financial characteristics give you a good chance for success. A mix of affordability and career opportunities could be the key. You may not find this in your hometown, but popular big cities may not be the right answer either.

2. Check your student loan balance and payments

For many graduates, student loans are their biggest immediate financial responsibility. Don’t ignore them; they won’t just go away.

Instead, face them head-on by knowing exactly what to expect. Contact your student loan servicer to learn how much you owe in total, what your monthly payments will be, and when those payments will begin.

It’s important to know what this financial responsibility will entail before you make decisions about job offers and how much rent you can afford.

3. Research student loan payment options

Suppose you’ve done your homework on your student loans and don’t like what you found out. Maybe you’ve found that the payments are much more than you’ll be able to afford on the salary you’ll be making at the start of your career.

Don’t panic. If you have federal student loans – and these are the vast majority of student loans – the government has programs to make it easier.

Look into an income-driven repayment plan. These can limit the amount you owe each month to a reasonable percentage of your earnings. They even take into account other necessary expenses you face.

Income-driven repayment does not happen automatically. You have to apply initially and then update your information each year. Studentaid.gov is at great resource to check out for information on federal student loan payment options.

4. Apply for a credit card

Graduation is a good time to apply for a credit card. You might improve your chances for approval if you wait until you’ve landed a job.

Even if you had a credit card in college, once you’re out of school it may be wise to look into a new credit card account. You may previously have been an authorized user on a parent’s account, and now need to set up an account for yourself. You may have had a student credit card, in which case you might find that your status as a full-time employee qualifies you for better terms.

Used correctly, a credit card might help you establish credit. Student loan payments will also allow you to build a credit history, but having a history of both loan and credit card payments can enhance that history.

Credit card companies are eager to market their products to recent graduates, so you may get a lot of credit card offers. Be selective. Compare interest rates, fees and reward benefits to see which card offers the best terms for how you intend to use the card.

4. Get to know the basics of credit

If you have a student loan or a credit card, your history of using credit will be tracked by three major credit bureaus – Equifax, Experian, and TransUnion.

That history will determine how lenders evaluate you in the future, such as when you want to get a car loan or a mortgage. Also, many employers and landlords check out credit histories when evaluating applicants.

The point is, since you’re going to have a credit history, you need to make sure it says good things about you. There are several things that can affect your credit score, but as you get started perhaps the two most important things to know are the following:

  • Payment history is the single biggest factor that affects credit score, so be sure to make all your loan and credit card payments on time.
  • Keep your credit card balances as low as possible. You can and should pay more than the minimum amount due each month. Keeping your balances at or close to zero will save you money and can help your credit score.

Credit reports from the three credit bureaus often differ, so you should check your credit report from each bureau at least once a year. This will alert you to any problems that are hurting your credit score. It will also show you if there’s been a reporting mistake that needs to be fixed. Finally, if unfamiliar accounts appear on your credit report it could be a sign of identity theft and should be reported as soon as possible.

6. Evaluate all aspects of your job offers

If you find yourself in a position to choose from multiple job offers, congratulations. Having choices puts you in a position of strength. Now the key is to make the right choice.

While starting salary is important, don’t overlook the substantial financial value that benefits can have. Young adults are often less concerned than older ones about things like health insurance and retirement plans. However, these things can start helping you get ahead financially from day one.

A generous health insurance plan with strong coverage can save you out-of-pocket costs every year. A 401k or other retirement plan with employer-matching contributions can be like getting a little extra in every paycheck.

Then there are the less tangible aspects of the job offer. Look into how stable the company is – does it seem to be doing well financially, and are there many employees who’ve stayed with the company for a long time? Also, is it a growing company that’s likely to create opportunities for advancement early in your career?

7. Create a budget that fits your starting salary

Once you’ve established your living situation and landed a job, it’s time to figure out a budget that fits those circumstances.

Keep in mind that your take-home pay will be less than your full salary, after deductions for taxes and insurance. Try not to plan on spending every penny of that pay. Saving money can have a tremendous impact on your wealth. Setting aside part of every paycheck allows you to invest that money so it can grow on your behalf. Also, having some reserves set aside for emergencies can save you the expense of borrowing if you’re caught short.

If all of the above seems like a lot to manage, just remember a few years ago when you arrived at college. It might all have seemed overwhelming at first – getting used to dorm life, making new friends, keeping up with the coursework, etc. By the time you graduated though, all that had become routine.

It’s the same with establishing your financial responsibilities as an adult. Just take it step by step, and before long what’s new today will become your new norm.

Richard Barrington
Cardratings Contributor

Richard has over 30 years of experience in financial services, including 23 years with the investment management firm Manning & Napier Advisors, Inc., where he led the Marketing Group and served on the firm’s Investment Policy Group and Executive Group. Over the years, Barrington has...Read more

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