As a college graduate, your move into adulthood is off to a great start. But now you’re likely on your own (or will be soon) and managing your finances is more important now than it ever has been. We’re here to offer a few money tips so adulting seems less daunting.
Create a Budget
1. Track your income and spending
Using a tool like Microsoft Excel is a great way to track your income and debt, but a pencil and paper does the job as well. The first step is to add up your monthly bills.
Common monthly expenses for college graduates include:
- Car payment
- Student loans
- Phone bill
- Insurance (health/auto)
The second step is to divide this monthly expense total by your gross monthly income (your income before taxes). This number is your Debt-to-Income Ratio.
2. Manage your debt-to-income ratio
Your debt-to-income ratio is an important number to lenders. This number shows lenders your financial strength and if you can afford to take on more debt. This number is important if you want to apply for a credit card, for example, or buy a house. The lower your debt-to-income ratio, the stronger your financial health.
- With a ratio of 35% or less, your debt is at a manageable level and lenders will find you an attractive applicant.
- With a ratio of 36-49%, your debt is being managed adequately but you have room for improvement. Lenders may require more information to determine if they approve your application.
- With a ratio of 50% or more, you need to take action. This number indicates that you do not have much leftover money after paying your monthly bills and lenders won’t be willing to approve you to take on any more debt.
If you need to lower your monthly expenses, one thing you can do immediately is review your memberships and subscriptions and determine if you can cancel any.
3. Cancel unnecessary subscriptions and memberships
Hulu, Netflix, HBONow, Showtime, Starz, Sling, Amazon Prime, FuboTV, PlayStation VUE, YouTube TV—these are just a handful of the online streaming video services available for cord-cutters. However, with these subscriptions ranging from $6-45 per month, subscribing to multiple services can easily make a dent in your budget.
Take a moment to review your bank account monthly statements and take note of all the different monthly subscriptions and memberships you pay for. Don’t forget about music streaming services, gym memberships, and meal prep delivery services. Do you use all of them? I’m sure there is at least one you can cancel.
When you were little, your parents probably taught you that sharing is caring. Jumping onto your parents’ Netflix account is a great way to practice this expression! If there are any services that both you and your parents subscribe to separately, ask if you can share. Maybe you pay for Hulu and your parents pay for Netflix.
Finance experts recommend that you aim to live on 70% of your income (saving and investing the remaining 30 percent.) Creating and maintaining a budget is essential in working on this goal.
Establish Your Own Finance Accounts
1. Get your own bank account
For college graduates, it’s not uncommon to still be tied to your parents’ bank accounts and credit cards. But being an adult definitely means having your own bank account.Look for bank accounts with minimal fees. An online bank might be your best bet. Because they don’t have expenses that your typical brick-and-mortar banks have, they can afford to offer better interest rates and minimal fees.
2. Begin to build your credit
Establishing credit early in your adult life can help increase your purchasing power later in life. I am 30 years old and many of my friends are struggling to get approved for a mortgage because they have little to no credit history.
If you have little to no credit, here are a few tips to help you establish your credit:
1. Become an authorized user. Being an authorized user on someone else’s credit card means that the cardholder’s payment history appears on your credit record. Be sure this cardholder is financially responsible and trustworthy.
2. Get a secured credit card. If you have no credit, you can start building it with a secured credit card. A secured credit card requires a cash collateral deposit that becomes the credit line for that account. This deposit is kept in a savings account and if you default on a payment, the money in the savings account can be used to cover the balance.
3. Buy something small. If you just opened your first credit card, don’t use it to buy a brand new couch. Start by buying something small, like groceries, and pay off the balance right away. It takes a while to build a credit score, but to ensure you don’t get in over your head, only charge items that you can afford to pay off right away.
Get a Job A.S.A.P.
If you just graduated, you likely cannot afford to wait for the perfect job. For example, if you graduated with a degree in journalism, don’t pull a Rory Gilmore and idolize Christine Amanpour to such a degree that you refuse “regular” jobs because your only goal is to travel the world and report about it.
Apply for a job, get experience, and make connections. Your student loans likely have a grace period, but after that you need to start paying them. You can’t start to get rid of your debt if you don’t have an income.
Make a Student Loan Repayment Plan
1. Know your grace period
The most common type of student loan is a Stafford Loan. These loans have a grace period of six months. Once your grace period is over, interest begins to accumulate and you need to start paying off the loans.
However, there are many different kinds of student loans and it’s important to know the terms of yours. There are also different types of repayment plans such as Standard and income-based plans such as Income Contingent. Debt.org has a great article explaining the different types of student loans.
Essentially, with all the payment plans, the longer you have to pay back the loan, the more you’ll end up paying in interest. Reach out to your student loan servicer if you need assistance with understanding your repayment options.
2. Life insurance can help you plan ahead
All student loans can be divided between federal and private student loans. If you have private student loans, there is an additional factor you need to consider. Who becomes responsible for my student loan debt if I happen to die prematurely? Morbid subject, I know. You just graduated college. Your whole life is in front of you. Unfortunately, no one is immortal.
Federally backed student loans, such as Stafford loans, are typically forgiven if you pass away. However, private loans often require a cosigner and this cosigner becomes responsible for the loan if you can no longer pay it—even if this is because you’re dead.
In addition, if you acquired student loan debt while married, upon your death your spouse may be responsible to pay your student loans in full if you live in a community property state.
Depending on your circumstances, it may be a good idea to look into a small term life insurance policy to financially protect your loved ones. Term life insurance can be customized to cover the amount owed and can last up to 30 years depending on the term length you choose. College graduates of a four-year degree are typically about 22 years of age. The average cost of a 20-year $100,000 term life insurance policy for a healthy 22-year-old is less than $10 per month.
The post-college life can be a scary place, but it’s finally your time to shine and make a name for yourself. These tips can help you start off on the right foot. Good luck, graduate!
Natasha Cornelius is the content manager and editor for Quotacy. She has worked in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. A long-time Mint user, Natasha loves making frugal fun by creating new DIY projects. Connect with her on LinkedIn.