COLLEGE GRADS: YOUR SECRET WEAPON IS A HEALTHY BUDGET
“If you’re a recent college graduate entering the workforce and have student loan debt, this article about budgeting after college is for you!”
You are likely no stranger to the fact that the average monthly student loan payment (for borrowers aged 20 to 30 years) is $351. Having a debt load so early in life can be daunting. But you're not alone!
Case in point: The average class of 2016 graduate has $37,172 in student loan debt. That’s up six percent from last year!
Taking a deeper dive:
- 66 percent of graduates from public colleges had loans (average debt of $25,550)
- 75 percent of graduates from private nonprofit colleges had loans (average debt of $32,300)
- 88 percent of graduates from for-profit colleges had loans (average debt of $39,950)
The road ahead may be lengthy, but if you treat it like a challenge, chances are you will make huge strides as you achieve minor budget ‘wins’ along the way.
To help whip your finances into shape, we have compiled several tips to guide you through some financial basics: budgeting, paying off debt and saving.
If you’re a recent college graduate with no student loan debt – congratulations! You’re among the rare few that get to enter the workforce with a clean slate. This article is still for you because, let’s face it, learning to budget takes time, skill, practice and patience.
Kudos to you for completing college and landing your first job post-college.
A large portion of your post-academia life will now focus on achieving success in your new career. However, you will want to set aside a segment of time to actively take charge of your ‘financial’ life.
This is where the oft-dreaded ‘budget’ comes into play.
Budgeting after college doesn’t have to be difficult. There are many common-sense financial planning practices you can easily implement - some of which you probably already do without realizing it!
And, while personal finance may sound like a heady term, it all comes down to learning what works for you. You'll figure that out with time and practice. What's important right now is that you dive in and get started.
Following these budget musts is a good rule of thumb and a great place to start:
- Prioritize debt and outline expenses
- FrugalRules says to include these top budgeting items.
- Automate your bill payments
- Identify long-term savings goals
- Create a separate emergency savings fund
- Live under your means
Now that you’ve outlined your expenses, let’s find a few tools to help you actively manage your budget.
There are oodles of apps to help you navigate post-grad life while you establish your very own approach to personal finance and budgeting.
According to NerdWallet, the top 10 FREE budgeting apps include:
Why it’s unique: It’s a web-based personal finance tool that brings together all of your financial accounts in one place. It connects directly to your financial accounts, including banking, credit card, student loans, car loans and more. You can also see what you owe lenders and create reminders to notify you when bills are due.
Why it’s unique: It offers easy money management and imports transactions from your financial accounts. You can create savings goals and set aside money as you go to pay for large infrequent bills.
Why it’s unique: The system enables you to plan your spending before it happens by creating monthly budgets in which expenses are divided into “envelopes” for each budget category, such as groceries or transportation. You then spend out of the designated envelope rather than your overall budget.
Why it’s unique: Spending Tracker is not connected to your accounts, so you manually log your own expenses and income into separate personal, business and savings accounts. Although this is more tedious than automated apps, it’s the most precise way to include all of your transactions — including those made with cash.
Why it’s unique: You categorize your expenses and the app helps you track how much money you have left in each envelope for the month. You can easily capture receipts from your phone to add to transactions.
Why it’s unique: It helps you not only track your spending according to categories month over month, but it also helps protect your cards from fraud and errors. It also searches for web deals and coupons to help lower your bills based on your spending patterns.
Speaking of web deals and coupons, you should check out this Grocery Club! For an annual fee of only $34.95, you can receive savings up to $1,800 on everything from restaurants, to local deals in your area, to hotels, to movie theater tickets, to retail products and even gift cards.
Why it’s unique: The calendar feature of this app shows you month-to-month when you tend to overspend. The app delivers statistics and reports of all your transactions and has easy search capabilities to find specific transactions.
Why it’s unique: Wally is a streamlined money management app that helps you to see where your money goes, set and then stick to budgets. You’ll receive notifications for upcoming payments or when you’ve reached your savings goals.
9. LEVEL MONEY
Why it’s unique: The “money meter” this app provides a visual representation of how your budget is doing in order to help you stay in the black.
Available on iOS.
Why it’s unique: This app is for all the savers out there. You set a goal, then log your progress as you set money aside for the goal each month. Its community feature shows how other people are using the app to achieve their own goals to motivate you to stay on track.
MANAGING THE DEBT GAME
If you’re among the millions of students burdened with debt, following a serious step-by-step plan can help. There are numerous approaches to debt reduction – one of which includes these seven steps:
- Create your monthly budget. Tips for tackling this step are provided in section 1 above.
- List all of your debt from lowest to highest.
- Figure out how much money you can squeeze from your monthly budget.
- Pay the minimum amount required on all of your debt..
- Apply the money you squeezed from your monthly budget towards the first debt on your list. Make sure to automate the payments with an app or online tool.
- Once you've paid off the largest debt, apply its monthly payment towards the next debt on your list, on top of the normal minimum payment.
- Repeat step 6 on all of your remaining debts.
In taking the seven-step approach, paying off your debt becomes a game of sorts. Once you get the rhythm of the seven-step process dialed in, you will be amazed how addicting the game becomes. It's like Candy Crush for your budget!
HOW TO SAVE MONEY WHILE TACKLING YOUR DEBT
The Boston College Center for Retirement Research recommends a 15 percent annual savings rate.
For many of you, saving that much may seem unfathomable given all your other budget items. If 15 percent is unrealistic, start with a lower percentage. Then, each year, set a goal for yourself to increase your savings rate by at least one percentage point each year until you get to 15.
LIVE LIKE A STUDENT
One best practice for budgeting after college is to just keep living like a student. This doesn’t mean you have to live like a pauper, but it does mean you should limit your spending and be mindful of your monthly budget.
As billionaire Mark Cuban says, “paying off bills, debt, and establishing a nest egg is far more important than indulging in a sprawling home or high-end fashion.”
Just because you’re making a steady salary now doesn’t mean that you should spend it. Continue to live as frugally as you did in college. Avoid eating out every meal. Wait to move out on your own. Avoid buying things new. Save the rest.
TAKE ADVANTAGE OF COMPANY PROGRAMS
Another savings mechanism is your company 401(k) or similar plan. If your company offers one of these plans, make contributions a priority in your budget. If they don’t, speak to a financial advisor about opening one.
Retirement savings might not be a top priority right now. But, when you consider that you’ll likely need two million dollars to live comfortably in retirement, it’s obvious the sooner you start saving the better.
A big selling point of these plans is that the amount you contribute annually to a 401(k) is deducted from your income. That means you don't pay tax on your contribution or any investment gains until you withdraw the money.
The other big advantage of saving in a 401(k) is that most employers match a portion of what you contribute, which makes it easier for you to hit that 15 percent savings target.
In 2017, the 401(k) contribution limit is $18,000. While you probably can’t afford to max out your 401(k) yet, every little bit counts. Whatever you can afford to spend, it’s important to start planning your retirement savings strategy now.
PEACE OF MIND
Armed with the proper knowledge, resources and tools, financial independence will become reality. Granted, the budget process can be a bit daunting, but the upside is peace of mind and a bright future devoid of one of life’s biggest stressors – debt! Best of luck to you on your journey to financial independence.