Five Financial Tips for New College Graduates

A woman in a graduation outfit hugs her mom
April 30, 2024 | Ben Heinze

Graduating college marks the beginning of a new era: Your first “real” job, a newfound sense of freedom and opportunity and (perhaps most of all) the responsibility to manage your finances. On top of navigating all the new challenges that come with being a new college graduate, managing your money can feel overwhelming. These financial tips for college graduates will put you on the right path and give you a strong financial foundation to build from.

1) Think through your living situation

Housing is typically the largest monthly expense, so it’s worth looking closely at what living situation is right for you after graduating. This is especially true today, where high rent and housing prices make finding an affordable living situation difficult.

While it’s not the most desirable option for most, if living with your family is still an option after graduating, it can be a huge financial boon and allow you to pay off any student debt you have quickly, as well as save up for a down payment on a future home. If that’s not a realistic option, or you strongly value the independence of moving out, splitting an apartment with roommates is a common solution. Multi-bedroom apartments are typically much cheaper per person than a one-bedroom or studio. Whatever you decide, the general rule of thumb is to keep housing costs below 30% of your gross income.

2) Build an emergency fund

While it’s tempting to tackle debt immediately or spend extra dollars on purchases you’ve been wanting for years, the importance of an emergency fund cannot be overlooked. An emergency fund is essential for when the inevitable unexpected expenses come up. These are things that happen to everyone at some point: Your car breaking down, unexpected medical bills, etc. Having a cushion against these expenses not only gives you peace of mind but can prevent you from needing to go into debt to pay them.

Your emergency fund ideally contains three to six months of living expenses. This number can seem insurmountable, especially as a recent college grad, but think of it as a long-term goal, not something you need to achieve by next month. On your way there, set smaller, more achievable goals, such as $1,000 or one month of expenses. Keeping your emergency fund in a high-yield savings account so it earns interest and grows over time.

3) Pay down debt

Many recent college graduates start their post-grad life in significant amounts of debt. According to Forbes, the average student loan debt per borrower in 2024 is $28,950. Paying this debt off should be a high priority.

There are two common methods that can help you stay on track when paying off debt:

Snowball method: Order your loans from smallest to largest, working to pay off the smallest loan off in full while making minimum payments on the others. After the first loan is paid off, move onto the next smallest until all loans are paid off. This method gives you quick wins early on that keeps you motivated to pay your debt off.

Avalanche method: This is the mathematically superior option but can feel more frustrating in the process. To follow this method, order your loans from highest to lowest interest rate. Work towards paying off the loan with the highest interest rate while making minimum payments on the others. After your first loan is paid off, move onto the next highest interest rate loan, and keep following that process until you’re debt-free.

Which method you follow is up to you. While following the avalanche method will result in your debt being paid off faster, many people find it more difficult to stick with. This is especially true if your highest interest loan happens to be a high dollar amount as well. If that’s the case, it will be a while before you fully pay off any loans. The early little wins the snowball method provides are a great mental boost, even if it takes a bit longer to pay off your debt.

4) Set a budget

Your budget serves as a foundation for your spending and is especially important as a new college grad who will likely be making more money and have more spending needs than before. Creating a perfect budget can be difficult, especially if it’s your first time living as an independent adult, since you don’t always know how much you’ll need and want to spend in certain categories. There’s nothing wrong with using your best estimate, just be sure to adjust down the line if your initial budget ends up being unrealistic.

If you’re unsure of how to start creating a budget, consider using the 50/30/20 budgeting plan. In this budget, 50% of your income goes towards needs (housing, groceries, transportation, etc.), 30% goes towards wants (eating out, vacations, entertainment, etc.) and 20% goes towards savings (debt, retirement, emergency savings, savings goals, etc.).

5) Take advantage of compound interest

While saving and investing as a new college grad can be difficult, every dollar that you can put away is incredibly valuable. Compound interest is in your favor when you have your entire career ahead of you, and money put away now will be worth much more than money put away in future decades. You don’t need huge sums of cash to see this in action. Take this example to see the power of compound interest in action: Imagine you invest $100 a month for retirement starting at age 25 until retirement at age 65. Assuming a 10% annual return (which is near the average returns of the S&P 500 index, according to Nerdwallet) you’d end up with around $531,000. If you wait until age 30 to start investing that same amount, the number drops to about $197,000. Waiting until age 40 makes your retirement stash drop further to around $69,000.

This isn’t to say that you have no hope of retiring if you wait until later in life to save and invest. Rather, it’s a reminder that the best time to start contributing towards retirement and other financial goals is as soon as you’re able.

Managing your finances as a new college grad brings new challenges, but none of them are insurmountable. Carefully thinking through your finances will help you create and maintain a sustainable budget, pay down debt and achieve your financial goals.


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