As a new graduate, you’ve got a lot on your plate. While this is an exciting time, it’s also an important time to make smart money decisions, including setting financial goals.
“I recommend taking time to prioritize what goals might be most important,” advised Laura Morganelli, a certified financial planner and financial adviser at Abacus Wealth Partners. “Having a clear picture of what success means helps provide necessary structure.”
So what should your financial goals be and how can you achieve them? Financial experts recommend doing six key things as a new grad to build a foundation for financial success.
1. Set a budget
You’ll want to set a budget based on your post-college salary. But this doesn’t mean spending more money compared to your college days.
“Once you graduate college, find a job, and receive your first paycheck, it can be tempting to splurge,” warned Katie Ross, education and development manager for American Consumer Credit Counseling. “But it’s important to live within your means.”
Ross advised calculating total take-home pay, adding up monthly expenses, and ensuring you don’t spend more than you earn. You should keep spending as low as possible to have more money for financial goals.
“College grads should continue living like they’re in college to keep costs low,” advised Andrea Woroch, a nationally recognized money-saving expert.
If you’re not sure how to do a budget, start by tracking spending for 30 days.
“Understanding where your money is going is crucial to achieving financial success,” advised Morganelli.
By tracking how you’re spending money, you can create a realistic budget that’s reflective of your lifestyle but imposes limits in areas where you tend to overspend. You can check out this guide to budgeting to create a budget that responsibly uses your post-college salary.
2. Make a plan for dealing with debt
Chances are good you’ll be dealing with student loan debt, as average debt for new grads reached $39,400 in 2017. You might also have personal loan debt, credit card debt, or a car loan.
It’s important to choose the right repayment plan for all debt, but especially for student loans.
Federal loans are typically deferred while in school, so you might need to pick a payment plan for the first time. There are many repayment options, including income-based plans. Review a complete list of repayment options to help you choose which plan is best.
If you have many areas of debt, you’ll need to decide which to pay first. Paying off higher interest debt makes mathematical sense, but some prefer a debt snowball method to score quick wins by first paying off debt with lower balances. You’ll also want to avoid new debt.
“Don’t rely on credit cards,” Morganelli said. “Depending on a credit card to cover expenses can quickly get out of control.”
She recommended using a credit card only if you can pay off your balance in full.
3. Work on building credit
While you want to be responsible about debt, borrowing helps you build credit.
“Your credit score helps lenders measure your ability to handle your money and repay your debts, which in turn determines the interest rates you pay for your car, mortgage, credit cards, and even rent,” advised Ross.
Paying student loans on time helps you establish a positive credit history. Credit cards, when used responsibly, can also improve your credit score.
If you’re worried about not being able to pay off the balance, you can still use a credit card to build credit.
Waymire advised charging the small recurring monthly expense, such as Netflix or Spotify, and then setting up autopay on your credit card to pay off bills as soon as your statements arrive.
“The benefit is that everything is on autopilot, you can keep your cards at home, and you’re building a consistent payment history with zero effort,” she said.
4. Build good spending habits
While saving is important, you’ll want to have a little fun. You can do that without jeopardizing your financial goals by spending smartly.
“Spending smart isn’t about buying cheap food and home goods,” Woroch said. “Instead, smart shopping has to do with learning the sale cycles, knowing where to find extra savings, and cultivating some impulse control.”
Woroch advised shopping at sales racks, buying generic, and searching for items secondhand using Facebook Marketplace, Tradesy, and local consignment stores.
You can also explore affordable travel destinations and ways to save on groceries and entertainment, such as joining rewards clubs, using coupons, and attending free events.
5. Start saving for retirement
While it might seem like retirement is a long time away, start investing early to take advantage of compound interest and build a big nest egg with less effort.
“Investing early in life, even if it’s a relatively small amount, adds up quickly when you have decades until retirement,” advised Dina Isola, a financial adviser at Ritholtz Wealth Management and personal finance blogger at Real$martica.
Ross suggested checking if your employer offers a retirement plan, especially if the employer matches 401(k) contributions. If you don’t have a 401(k), she advised opening an individual retirement account, also known as an IRA.
Isola also stressed that you should treat contributions to retirement savings as a bill you must pay, just like rent, and advised working up to saving around 20% of income, doing so slowly if necessary.
It’s also important to be smart about the items in which you invest.
“When you invest, be a cheapo,” Isola said. “Tools such as FINRA’s Fund Analyzer can help investors compare costs of different funds. There are also many low-cost fund options, or robo-advisers, if you need more planning help.”
She suggested being “boring” and choosing simple investments, such as index funds.
“Good investing is strategic and methodical,” Isola said. “Excitement is for gamblers, and we all know who gets the good odds in gambling.”
6. Build an emergency fund
Finally, it’s essential to start an emergency fund so that you don’t end up in debt because of unexpected expenses.
“For many recent graduates, living paycheck to paycheck is common,” Ross said. “Even though setting aside some money for an emergency fund might sound unrealistic, saving just $5 a week can help if something unexpected happens, like a job loss, medical bill, or car repair.”
Isola indicated an emergency fund is “the first line of defense against racking up credit card debt,” and suggested keeping your emergency fund in a separate account so you won’t be tempted to spend the money unless it’s a true emergency.
You’ll also want to make sure your emergency fund is big enough to shield you from roadblocks.
“Start with $1,000, then work towards saving up three to six months worth of necessary expenses,” advised Waymore. “If you work in a more stable industry and make a predictable salary, you can get away with three months, but if your employment is more unpredictable, shoot for six months.”
If you start an emergency savings fund and work it into your budget, you can build your emergency fund as quickly as possible so you’re protected from bumps in the road.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 6.65%1||Undergrad & Graduate|
|1.99% – 7.10%2||Undergrad & Graduate|
|2.99% – 6.44%3||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 6.43%4||Undergrad & Graduate|
|3.18% – 6.07%5||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of June 23, 2020. Information and rates are subject to change without notice.
2 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.19% APR (with Auto Pay) to 6.43% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.43% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of June 15, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 6/15/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.19% effective June 10, 2020.