Graduating from college this year? Don’t panic! There are a few simple ways you can wrangle your financial situation to set yourself up for short and long-term success.
These tips help you set up a budget, manage your expenses and start saving for your long-term goals.
1. Start Paying Your Student Loans
If you’re worried about your student loans, you’re in good company – 43 million adult Americans have student loan debt, for a total of $1.5 trillion dollars. Getting to know your loans can help reduce this anxiety, and get you on a path towards repayment.
Here’s the hard truth; paying off your student debt is one of the best investments you can make towards your future. Paying off debt on time improves your credit score, which can help you make big purchases like a home or car. Paying off your student loans faster also limits the amount of interest you’ll accrue, which increases the impact of your early payments, even if they’re small.
Everyone’s loans are different; check in with all of your loan providers and familiarize yourself with the loans you have to manage. It’s likely that you have some combination of federal loans and private loans. When you take a look at all your student loans, you’ll see that the interest rate varies significantly. If you have the option of putting extra income towards your loans, focus on paying down your high-interest loans first. Your federal loans should be a lower priority than your private loans, since federal loans offer more flexibility with forbearance or deferment options when your finances feel strained.
2. Set Up a Budget
Don’t live in fear of your finances. You’ll want to get intimately familiar with the places your money is going each month. Your financial picture is going to get more complex as you leave your parent’s health insurance policy and take on more responsibilities like a phone bill, rent, loans, and car payments. Set up a budget to keep track of your money’s movement.
There are several online tools like Mint.com for managing a budget. Find a system that helps you track things like your food budget, bills and recurring payments and your savings. Apps are a great way for setting short and long-term goals that work within your current income profile, and can help make your financial goals feel more attainable.
3. Understand Your Taxes
Tax law changes from year to year, and many recent college grads were caught off-guard by the changes in 2018. President Trump’s Tax Cuts and Jobs Act is the biggest change to tax law in decades; personal exemptions can no longer be claimed under the new law, which eliminates the juicy tax returns many of us were used to over the last several years.
The IRS offers a Volunteer Income Tax Assistance (VITA) program that provides free tax services to anyone making less than $54,000 per year. Many other tax experts and preparers offer reduced rates for recent grads, like H&R Block, but you can also commit to filing your taxes yourself using a software like Turbotax or the IRS’s own digital filing platform.
4. Navigate Your Insurance
Health insurance can be essential for avoiding a life-altering financial issue in the event of an unexpected medical issue. Simply put, the cost of your health insurance is far less than the cost of not having it when you really need it. If you’re turning 26 and are about to transition to your own health insurance, it pays to know your options.
The federal government provides a health insurance guide for recent graduates. This guide helps students pick the health insurance option that works best for their situation. Your new job may also provide benefits, but you need to read some of the fine print on your policy to understand what you’re covered for. This can help you plan your emergency fund around your deductible.
Your new job may also offer a life insurance policy, which can be a great investment if your partner, child or anyone else depends on you for income. Life insurance policies vary, but most term life insurance policies offer a low monthly payment while insuring your loved ones against financial worry if something unexpected occurs. Shop around and see which policy works best in your budget.
5. Build Your Emergency Fund
Life comes at you pretty quick after graduation. Limiting the stress or anxiety you feel over your finances should be a priority. An emergency fund of just $1,000 can help you feel more secure about your rent payments, your health and your ability to take care of yourself. Prioritize putting away a lump sum in your savings account for a rainy day, and you’ll feel better about your financial situation in no time.
Written by Kendra Madsen
Kendra is a freelance writer who loves healthy living, the outdoors, and obsessing over plants. When she isn’t writing, Kendra can be found exploring the mountains with her puppy or curled up at home with a good book.