So you’ve just graduated – congratulations! Now what? With the average student loan debt in Montana coming in at $26,280 in 2015, the first priority for most new grads is to find a job so that they can begin the task of paying back their student loans.
While it can be scary to be faced with so many new and unexpected expenses after entering the “real world,” it just takes a little knowledge, some planning, and a touch of discipline to manage your money successfully as a recent graduate.
Get to know your debt
First things first, get to know exactly how much you owe and what your interest rates are. It’s easy to feel like making your minimum payment each month is enough to make a dent; however, depending on the amount you owe, paying just $50 more than the minimum every month can significantly decrease the amount of interest you pay on your entire loan.
Make friends with budgeting
Once you’ve worked out how much of your income will go towards your loan repayments, it’s important to plan where the rest of your money will go. Leaving the relative safety of college can open up a whole host of expenses that you might never have thought of, like insurance, utility bills, and income tax, so factoring everything in to your monthly budget will let you know how much money you have left to play with for non-essentials every month.
You might not feel very financially secure at this point in your life so having a structured budget as a guideline when spending can help you stay on track.
Keep your eyes on your credit score
Something you should do regularly, both during college and after, is to check your credit score. Every payment you make on your student loans will affect your score and in turn, your options for apartment rentals, car loans, and a whole host of other necessities that require a credit check for purchase.
If you have your student loan repayments under control, you may want to consider opening a credit card to further build your credit score. The best way to do this is to only purchase what you can afford on your credit card and to pay the balance in full each month.
When you make it – save it
While the thought of saving can be extremely daunting when you have so many outgoing bills and repayments, factoring saving into your budget is a smart move.
Begin by working out how much you can afford to save each month in addition to your other expenses, then set up an automatic payment for that amount to go into a savings account, just like you would with a bill. Think of this as “paying yourself first.” You’ll be surprised how great it feels to know that any leftover money you have at the end of the month can be spent on anything you like, as you’ve already added to your savings.
Building up an emergency fund of at least three months of salary is ideal, especially if you’re in an entry level position, which can often be the most unstable. Once you have a buffer, it’s important to start investing for your retirement into a 401K or IRA so your money has time to grow. Tom Boos, president and CEO of Billings Federal Credit Union encourages his members to start saving young: “$1 invested at age 20 could be worth $10 at retirement. If you wait to invest at age 30 or 40, you’ve missed out on your greatest asset – time.”
Take advantage of your benefits
Investigating the benefits that different companies should be high on your list while job hunting. The cost of healthcare is a huge monthly expense, so securing a job with a good package can significantly impact your budget.
And it’s not only the insurance perks that you should be taking advantage of. Emily Goodling Guldborg from McCone County Federal Credit Union reminds graduates, “if your company offers a matching contribution on a retirement plan, please take it. Give up on a coffee or sandwich here and there and take full advantage of the free money that is being offered to you.”
Most workplaces offer matched savings for 401K plans which is, as Emily says, essentially free money. Enroll and reap the benefits of any company offering as soon as you can.
No new debt
Starting a new life after college can bring desires for expensive purchases like new cars, furniture, or even a vacation. If you can’t afford to pay for these things in cash or with savings, it can be tempting to take credit card companies up on their offers of credit as a quick fix. It’s important to remember that every new debt is another monthly payment that you’ll need to make, and missing a payment could cause a serious roadblock for you once your credit score is dinged. Matt Macrow from Valley Federal Credit Union advises “make sure you will be okay with any new monthly payment for multiple years, alongside being able to pay yourself first.”
The best way to approach big purchases is to factor saving for them into your monthly budget. It will take longer to get to the gratification of owning that new car or furnishing your new place, but at least once you do, you’ll still be in control of your debt and on your way to paying off those student loans once and for all.