3 Steps to Take After Graduating From College

An education is a great thing—but just because a student has graduated from college doesn’t mean they’ll make all the right decisions when it comes to personal finance. In fact, according to one survey, most recent college grads reported making a credit-damaging mistake within two years of getting their degree.
 
The post-graduation world of student loan debt and added responsibility can be a lot for anyone to take in. Between trying to find the right job to generate a meaningful income and aligning your career goals with personal goals, tending to personal finance can seem like a lot to handle. But there are some simple steps that newly minted college grads can follow to enhance their chances at personal finance success.
 

Step 1: Learn the Basics of Personal Finance First

 
Upon entering the real world, college graduates will find themselves at the helm of their own financial situations. Rather than neglect these responsibilities, it’s far better to take a proactive approach. Put systems in place that will make mastering personal finance much more likely down the line. Here are a few of the basics every college student should know.
 

• Pay yourself first. Every time you receive a paycheck, try to put some of it away. This is a concept known as “paying yourself first” because it means that in addition to expenses like taxes, paying off debts and rent, some of your money will be ultimately yours to keep. Establishing the habit of saving can be more important than the amount you actually save at this point in your career.

• Pay off debt. This should be a major priority, as the longer debt stays around, the more the interest will pile up, resulting in more payments down the road. Don’t keep adding to existing debts with additional purchases.

• Live within your means. As a general rule of thumb, spend 30% or less of your net income on housing or rent. It may be tempting to go above your means and live somewhere more comfortable, but it’s more important to get yourself on solid financial footing first.

Step 2: Manage Your Debt (Especially Student Loan Debt) Effectively

 
Many college students graduate with at least some level of debt. According to the Institute for College Access & Success, 66% of students who attended public colleges have student loans. It’s important to understand that student loan debt comes with interest—and the longer you wait to pay it off, the more it will accrue.
 
Although it might not seem like it, paying off more now can save you money later down the line. If you have the income to pay off a student loan three years ahead of schedule, that represents three years of added interest you’ll never have to pay.
 
There are generally two approaches you can take to get out of debt. With the “snowball” method, you’ll pay off your debts from smallest to largest. This is akin to rolling a snowball down the hill: While it’s small at first, the momentum and added snow eventually add up. On the other hand, the “debt avalanche” method means focusing on the debt with the largest interest rates first.
 
So, why is eliminating debt so important? Eliminating debt frees up more income for saving, investing, spending or upgrading your lifestyle. And eliminating debt early means saving potentially large amounts of money by avoiding future payments on interest.
 

Step 3: Set Yourself Up for Life

 Your income may not be where you want it at this stage, but you do have one major advantage working for you: compounding interest. At your age, any money you set aside for savings and retirement is far more powerful than it will be at any other stage in your life. Simply putting money aside for a brief period in your 20s can yield far greater results than fastidious saving later on. This happens because of your chief advantage: time.
 
The habit of paying yourself first is important because it allows you to take advantage of compound interest. Now is the time to contribute to a 401(k) plan, in which your employer may match some of your contributions. You can even set up your own retirement account, such as a Roth IRA. Even if you can’t invest a lot right now, remember that your immediate post-college dollars are the ones that will accomplish the most when put to work in the markets. Even if you have to set up an automatic contribution of only $50 a month, it can be a great stepping stone to investing later in life.
 
Even if your income isn’t high enough for you to save money, there are ways you can create some savings. For instance, you could pick up some freelance work during your free time. Alternatively, you could get a cash back card, which rewards you for purchases you were already going to make. You could also search yard sales for antiques, which you could then resell online. The point is that there is an infinite number of ways through which to boost your savings, many of which don’t have to come from your salary.
 
Graduating from college should mean having more career advancement opportunities later on. But those advancements will only yield results if you can establish the personal finance habits you need from the get-go. Follow these steps to get a better handle on your money, eliminate debt and start building for a successful financial future.
 
 
About the Author:
Robert Harrow reports on the credit card industry, focusing on how changes to regulations and card offerings will impact issuers and consumers alike. Prior to working at ValuePenguin, Robert researched cancer imaging and treatment laser systems at CUNY Hunter College. He graduated with a major in Physics and minor in Mathematics from Hunter.