8 Tips to Help Recent Grads Gain Financial Independence
Graduating from college usually signals the end of one phase of life, and the beginning of a new chapter that includes self-sufficiency. But, many college grads give schools a “C” in credit and debt education, feeling that they haven’t been adequately prepared to make budgets, manage debt and credit, and understand other methods of achieving financial independence.
However, it’s never too late to learn how to make wise money decisions. Three members of the American Institute of Certified Public Accountants Financial Literacy Commission have 8 tips to help recent college grads make prudent choices and declare their financial independence:
#1: Have a plan to repay student loan debt
According to a recent survey, student loan debt negatively impacts young workers in a variety of ways. Survey respondents reported worrying about paying their loan to the extent that it is impacting their health. Monica Sonnier of the AICPA tells GoodCall®, “Recent college grads should put paying off student loans on the top of their list of ‘to do’s’ for establishing financial independence.” Sonnier also warns against racking up other debt until these loans are paid off. “Having student loan debt hanging over your head can stymie your efforts at reaching almost every other big financial goal ahead of you,” Sonnier says.
#2: Avoid excessive credit card use – and balances
While credit cards can provide convenience, failing to use them wisely can inconvenience you for a very long time. “A common misstep for recent college grads is having too many credit cards,” Sonnier says. “It’s tempting to take on as many cards as you can qualify for, but this creates temptation to use them all and rack up ‘senseless’ debt pretty quickly.” She recommends having no more than two cards – for convenience – and warns against carrying a balance.
It’s tempting to pay the minimum amount due, but if you choose this option, it will take forever to pay off your balance. For example, according to the Federal Trade Commission, if you charge $1,500 on your card at 19% interest, and pay the monthly minimum amount of $60, it will take more than than eight years to pay off your card – and that’s assuming you don’t change anything else. Also, instead of paying back $1,500, you’re actually paying $2,389.
#3: Manage your credit score
One measure of financial independence is the ability to make major purchases without a co-signer. However, as an adult, your credit score plays a major factor in whether you can purchase a car or lease an apartment by yourself. According to Tracie L. Miller-Nobles, AICPA, “Your credit score can be dinged by things like late payments, balances near the limit on one or more cards, or a collection of relatively new cards like those that are sometimes offered in stores with the promise of a quick discount on that day’s purchases.” However, the right financial decisions can improve your credit score.
#4: Make a budget and keep monthly costs manageable
Miller-Nobles tells GoodCall®, “One of the first items you should complete after graduating from college is a budget, which can help you determine how much you should spend on items such as utilities, rent, groceries, car payments, and entertainment, because these expenses can approach – and even eclipse – your income, leaving no room for savings.”
However, a budget can help you identify what you’re spending money on and whether you’re overspending, which is not the way to reach financial independence. “Think about what you can comfortably afford when taking on recurring bills that will appear every month,” says Miller-Nobles.
#5: Consider getting roommates
You might not like the idea of getting a roommate – or two – especially if you had to share living quarters while in college. But imagine how much money you could save if your rent and utilities were cut in half. “You could even share other costs, such as food,” Miller-Nobles says. This is one of the fastest ways to reach financial independence. “Make sure to use the money you are saving to pay down your student loans, credit card debt, or to help fund your retirement – you’ll be surprised by how quickly this small saving will add up to large returns.”
#6: Build an emergency fund
A recent study reveals that 31% of young millennials and 33% of older millennials have no savings, while 35% of young Gen Xers and 37% of older Gen Xers haven’t saved any money. “It’s a good idea to have enough cash and ‘liquid’ type investments (like money market funds) to cover ongoing expenses for at least six months,” according to Neal Stern, AICPA. “An unplanned gap between jobs or a major expense, like a car repair, can come along when you least expect it.”
#7: Make sure you have adequate insurance
Recent graduates are trying to cut expenses wherever they can, but don’t skimp in this area. “As careful as we all try to be, a mishap can strike at any time – your car is in a fender-bender, a flood damages your carpeting, or your bike disappears,” Stern tells GoodCall®. “Check with a professional insurance agent to make sure you have the right coverage to protect you from losses that you can’t afford to pay for.”
#8: Take advantage of employer matches
The phase-out of retirement pensions, increasing interest rates, and market volatility are some of the reasons millennials (and Gen-Z) must save twice as much for retirement as baby boomers. “It is never too early to start saving for retirement, Sonnier says. “You may not have much extra to put away each month at this time of your life, but you should be sure that you are contributing to your employer matches – that’s ‘free’ money.”