If you’re a college student, and you have your eyes on graduating soon, congratulations! However, getting done with college is only the first part. You’re going to have to make a lot of tough financial decisions soon, including where you work, where you live, and more. But, you can set yourself up for a strong financial future now by following these steps.
Some of them may not be the most popular ideas for a college graduate, but they are essential if you want to have a strong financial future. Just like with compound interest – the small decisions you make now, compounded with each future decision, can make a big difference by the time you are 65 years old. So, do the best you can now to set yourself up for success.
1. Save Up an Emergency Fund
This should be priority one for anyone who is graduating. Hopefully you have been working through college, and have been able to save up a bit of cash during this time. The fact is, you will most likely be unemployed for a bit of time (while looking for a job after graduation), so you need to make sure you can afford to live.
It is a good idea to have anywhere from 6 months to 9 months worth of expenses saved, so if you’re not there yet, try to get there as quickly as possible.
2. Start a Roth IRA
This should be savings priority number two for any recent grads. Starting to save for retirement when you’re early is key to success in later life. The power of compounding is huge, and so the earlier you get started, the better off you will be.
To learn how to get started investing, check out my new Investing 101 – Your Guide to Investing page. It has all the resources you need to get started with a Roth IRA.
3. Avoid Student Loans & Get Rid of Them if You Have Them
If you haven’t read my Student Loan Debt eBook yet, why not? I go into elaborate detail about student loans, and why you should avoid them. If you already have them, you need to focus on getting rid of them as quickly as possible to set yourself up for a strong financial future.
Don’t become a slave to your debts. Develop a plan to pay off your student loans as soon as you can start paying. Even if deferment lasts 6 months, if you can start paying in 3 months, do it!
4. Stay Away From Credit Cards
As you are finishing up school and starting out in the real world, you may quickly find yourself spending more than you’re making. Things are expensive, but you don’t need everything right away.
Save yourself some pain, and avoid using credit cards. Stick to your debit card, and make sure that you are only buying stuff you can afford.
5. Get a Nice, Reasonably Priced Suit/Interview Outfit
Looking nice is a must, and this bit will cost you, but it doesn’t have to cost you a fortune. If you are applying for jobs, you need to look nice for the interview – and this means a suit for men or a very nice business outfit for women.
However, keep these in mind when you go and get these clothes:
- How often are you going to wear them?
- Can you wear them in other ways to make them more versatile?
6. Get a Job With Benefits
When looking for jobs, make sure that you are looking at the benefits. In college, you probably didn’t worry about things like health insurance or life insurance. But, once you fall off your parent’s policies, you will need to provide these things yourself.
When looking at jobs, don’t just look at the salary, but also look at what they will offer you in terms of benefits:
- 401k
- Insurance
- Spending Accounts
- Education Assistance
There are a lot of employers who do offer these types of benefits, so make sure that you are connecting with them. And once you do land the job, check out my Graduate’s Guide to Open Enrollment to help you make your decisions.
Photo Credit: Step Brothers (2008)
7. Get Roommates During Your First Job
Sorry, but your days of having a roommate shouldn’t be over yet if you want to build a strong financial future. Everywhere that jobs are plentiful, housing is also expensive (think New York, San Francisco). That is why you should still keep a roommate – to keep the cost of housing manageable so that you can save for other things!
A second, more “mogul” method, is to purchase a small 2 bedroom condo, and rent out the second bedroom. This allows you to start being a home owner while keeping costs in line. However, read step 8 first!
8. Only Buy a House After Working for More Than 1 Year
If you are considering buying a home, make sure that you have worked at your job longer than one year. I say this, because one year lets you figure out if you like the job, what the prospects are for moving jobs or careers, and gives you an idea of where you see yourself salary-wise in 5 years. One year also gives you time to figure out the city in which you live, and where the good places are to purchase a home.
If you buy a house too early, you could end up in a situation where you hate your job, but have to work to afford your house. Or, you could limit your upward mobility because you limit where you can relocate to. When you’re young, that is the time to take career advancing assignments and move around a bit. Don’t force yourself to settle down at 22 years old. Read the dialogue here: should a college student or recent grad buy a house for more information!
9. No New Cars
I made this mistake early on in life, and I’m not going to let others do it as well. Even if you can afford it (maybe graduation money, maybe you got a signing bonus), just don’t do it. Read the 4 Finance Tips I Wish I Learned at 18, and you can see why buying a new car just isn’t worth it.
If you need a car, stick to a good used car instead of a new car. You will save a lot of money, which you can use towards other things like your emergency fund or Roth IRA (Steps 1 & 2).
10. No Fancy Vacations
Sorry to burst your bubble, but you should avoid the fancy, spring break style vacations for a while. Vacations cost time and money, which are both hard to come by for a recent graduate. Usually, when you start out, you get minimal vacations to begin with. Then, you need to make sure that you have enough saved, and that you are working towards your other financial priorities.
Once you’re sure everything is in order, plan and save for a vacation. But until then, you might have to take a break from them for a couple years.
Readers, what other steps are essential to get started off on the right financial foot after college?
I love the roommate advice. I did that my first year out of college and it saved me a lot of money. I also with I had taken the “no new car” advice.
I do disagree with the credit card one. Credit cards are great for building credit and potentially getting rewards if they are used responsibly.
Very true – if used responsibly. If you treat a credit card like a debit card, and use it for the rewards and pay it off in full each month, I’m all for using them!
Couldn’t agree more about the ROTH tip. It’s so important to start that when you’re young, because most recent grads are in a very low-tax bracket.
Might as well put away after-tax income now, so that when you are older (and hopefully richer…lol), you can take that money out tax-free.
Great point – I hope to be in a higher tax bracket when I retire compared to where I am now!
Great advice…but
I also disagree with the credit card. It is important to start building credit early. I always advise students to get a credit card, and use it for small purchases. Then pay it off monthly. If they can’t be responsible enough to do that, then your advice is best.
Start a savings account and contribute to a 401K. You can start small and add to it. Time is more important than the amount.
Time is a huge factor – the power of compounding is amazing!
Avoid debt, and then many of those expensive purchases such as new cars won’t happen! Being able to have discipline, and determine wants vs. needs, is a big deal for people starting out.
I know someone who has 3 years of emergency cash. It’s a big psychological boost. It gives him a long term approach to investing. And it maximized his capital gains.
Wow, 3 years is huge, but I can see where it helps emotionally!
I would tell grads to get a credit card, but also get some serious discipline. If they are reading your site then they probably have that willpower.
I would also say that to maximize the benefits of time and compounding to instead keep a line of credit as an emergency fund instead. This way all of their savings can gain interest and compound if they do not need the emergency money. They have the line of credit if it is ever needed and then savings after the emergency or during the unemployment can go towards paying off the line of credit. I just prefer to have all my savings invested and working for me rather than sitting in a savings account losing purchasing power to inflation while it waits for a rainy day.
Thanks for sharing several tips for college graduates. For tip #4 on staying away from credit card, I disagree. A credit card can be helpful. I think its important for graduates to know all of the responsibilities in owning a credit card including the perks and start building a credit history.
Charlotte
Great list! I agree with all of them, except the credit card one as others have said. I would rephrase that as “Don’t use credit cards to live beyond your means.” I applied for my first credit card shortly after I graduated but I only used it for a small purchase every so often. After three years of using debit cards, I knew I could trust myself to not overspend my accounts so I switched to using credit cards for all purchases.
This list is so crucial – having a roommate, not buying a new car, setting up an EF, starting a Roth IRA. I did all of them except saving for an EF – thankfully nothing terrible befell me in those first couple years!