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Key Points:
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Financial tips for college students should include a savings plan.
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The sooner you invest, the more earnings you can compound over time.
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Following college financial planning tips will help you pay down debt faster, build an emergency fund, and start to save for retirement.
Graduate students face several financial challenges, including student loan repayment strategies and maintaining a good credit score. Mastering your finances early in your career will help you save, invest, and manage debt over a lifetime.
Mastering your finances early in your career will help you save.
Let’s explore five personal finance tips for college students.
1. Maintain a Good Credit Score
Your credit score is a rating that determines how likely you are to repay a debt on time.
A good credit score allows you to borrow more money, and your loan will carry a lower interest rate. When you rent an apartment or open a credit card account, your credit score may be checked.
FICO is the most common credit scoring model. Your history of debt repayment determines the score, the amounts you currently owe, and how much available credit you use. Timely repayment of student loans will increase your credit score.
The score also considers how often you apply for credit and how many different types of debt you carry.
2. Know the 50/30/20 Rule
The 50/30/20 rule is a simple budget strategy, and a budget keeps your finances on track.
A budget for college graduates includes calculating your monthly net income, which is your income after paying taxes. This budget calculator will divide your income into three categories:
- Needs (50%): Essential spending, including rent, mortgage payments, groceries, utilities, and other bills you pay each month
- Wants (30%): Not essential spending, such as entertainment, travel expenses, and luxury purchases
- Saving and debt repayment (20%): Savings, repaying debt, and other financial goals, such as funding your retirement
Great finance advice for college graduates? Stick to a monthly budget.
Student Loan Related Articles
Federal Student Loan Payments Set to Resume Soon: Learn How to Prepare
Biden Cancels $39 Billion in Student Debt
3. Make a Savings Plan for Retirement Now
Financial tips for college students should include a savings plan. The more years you have to invest, the bigger your account value can become. Starting early can make a huge difference, even if the amount you invest in a savings account is small.
Compounding interest refers to earning interest on both your original investment and earnings from prior periods. Assume that a $1,000 investment earns $50 (5%) in year one, and the investor reinvests the $50 in earnings. In year two, the investor earns 5% on $1,050, and year two earnings total $52.50.
The sooner you invest, the more earnings you can compound over time.
4. Pay Back Your Student Loans
Repaying student loan debt is on every list of financial advice for college graduates. After a repayment pause, all student loan balances are now accruing interest.
Contact your loan servicer and verify the interest rate charged on your debt. If the rate is high, you might consider refinancing the debt for a lower interest rate. Use this loan calculator to estimate the overall cost of your loan.
Next, determine the amount of income you can use to repay debt, and set up an autopay program to ensure that you pay on time.
5. Start an Emergency Fund
As the name implies, an emergency fund is an account balance that is used for emergencies. If you need funds for a car repair or to replace a broken laptop or appliance, you can use the emergency fund.
Consider using money from the 20% category in your 50/30/20 budget to build an emergency fund. This simple saving growth calculator is a great tool for this purpose.
Over time, your goal should be to grow the fund balance to three to six months of living expenses. If you have a more expensive emergency, such as an unexpected medical bill or job loss, the larger balance can cover the expense.
6. Invest the Right Way
The investment vehicle you choose has a large impact on your total earnings over time. Retirement plans are a great place to start, and many employers offer a 401(k) plan to workers.
A 401(k) plan offers several advantages. Your employer may match the dollars you invest with additional funds provided by the company. If you invest 5% of your wages in the 401(k), an employer may match with another 5%. You double the total dollars invested, and your earnings accumulate in a tax-deferred account. No taxes are paid until you withdraw funds at retirement.
The Bottom Line
Following college financial planning tips will help you pay down debt faster, build an emergency fund, and start to save for retirement. Students have years to build an investment portfolio, and starting small can have a huge impact over time. Take action now to secure your long-term finances.
FAQ
How Do You Make a Budget?
Go through your monthly spending and label expenses as either fixed or variable. Determine which expenses you must pay each month (rent, utilities, car payments), and those costs that are variable (meals out, entertainment). A budget for college graduates can help you avoid financial mistakes.
How Can You Save Money as a New Graduate?
Create a monthly budget, and determine the interest rate you pay on all debts, including student loans. Allocate a percentage of your monthly income to building an emergency fund. Even if the amount you save is small, the fund balance will grow over time. Eventually, you can also start to invest for retirement.
How Can You Pay Off Student Loans?
Include student loan payments in a monthly budget, and make all payments on time. If you have multiple student loans, determine which loan has the highest interest rate. If possible, use some of your budget to pay more than the minimum payment on the loan, in order to reduce the balance faster.
Article Topics
Personal Finance
Kenneth Boyd is a four-time Dummies book author, including the book Cost Accounting for Dummies. Ken writes, blogs, and provides video content on business topics.
