A milestone is quickly approaching. Those early morning lectures, late-night study sessions and lengthy terms papers will eventually lead to one thing – college graduation. Soon, you’ll officially enter the workforce and full-fledged adulthood. This transition period is a new chapter and it is one of the most exciting phases of your life.
I remember just after graduation making long-term financial plans for the first time. Like most graduates, I was determined to get my own place and my own car. I was able to do both within a year of graduating because of the choices I made right after completing college. My first job as a graduate paid only $12 dollars an hour, but I was able to save over $10,000 in a year. How? By saving $900 of my $1,400 a month take-home pay. I was living at home and was able to cut my budget down to $500 a month. This left $900 each month for savings.
As you start your career and begin putting all you’ve learned to use, becoming more financially savvy will be critical to ensuring your long-term success:
Here are some financial tips to help you transition from college to the workforce.
1. Create a budget
Figuring out a budget is a critical first step to managing your money. After all, if you don’t know how much you're spending and what you’re spending it on, how will you find ways to save? Once you’ve listed all your expenses it might be helpful to divide the list into must-pay (rent, car payments, student loans, etc.) and optional (movies, dining out, etc.). Be honest here—sure, you want to maintain that fun lifestyle you had in college, but now you’re footing the bill. You’ll quickly see where you can cut back and start to generate savings.
2. Map out a plan to repay your student loans
Repaying student loans is one of the hallmarks of post-college adulthood. According to CNN Money, seven in 10 college seniors graduate with student loan debt. Reach out to your student loan provider and get a clear understanding of the repayment process. Here are some questions to ask:
1. Once I graduate, when will my first payment be due?
2. What assistance do you offer (if any), if I’m unable to make my payments, and what are the consequences should I be unable to repay?
3. What are my repayments options?
4. What are the pros and cons of consolidating my loans?
5. Do you offer forgiveness, deferment or forbearance? If yes, under what circumstances?
6. Am I able to refinance my student loans?
Knowing the answers to these questions will help keep your loan out of default. Defaulting on a student loan can do as much harm to your credit as foreclosure and bankruptcy, so avoid it at all costs. The good thing is that if you have federal student loans, there are programs to help you if you have trouble with repayment.
3. Figure out how much you’ll need for retirement
I know it can be difficult for college students to think about retirement because it seems so far away. It was difficult for me, too, until I began to visualize myself during retirement. To help, I gave my 65-year-old self a name: Wanda. Once I began to make the connection between myself now (Tiffany) and myself later (Wanda), I became more interested in long-term financial planning. This quick video offers lessons on how connecting with your older self can make planning for the future easier and even more real.
One of the tools Wanda and I have used for our long-term financial planning is the Prudential Bring Your Challenges site. This site has easy-to-use simulators to help you understand and plan for retirement, investing and insurance. Currently, Wanda and I are obsessed with the Time to Up It tool. It shows me how contributing just a small percentage of my income to my retirement now can add up to a lot more for Wanda later. This tool also helped me to fully understand the importance of contributing to my 401(k) as soon as possible.
4. Automate your finances
Now that your budget is down on paper and you’ve started saving, it’s time to automate. Automation is the new discipline. It’ll also take a few things off your mind so you can focus on the big picture. You should automate transfers to your savings accounts, bill payments and even charitable giving. Also, taking advantage of your company’s 401(k) is quick and easy to way automate saving for your retirement.
5. Consider a financial advisor
After I discovered Wanda, one of the first things she had me do was find a financial advisor. It wasn’t as hard as I thought it would be. I asked a lot of questions and made sure that I felt completely comfortable with my advisor before making a commitment.
It’s your turn to take the first step toward looking after your “Wanda.” Start your search for your financial advisor here.
Once you narrow down your choices, it’s time to interview your top three picks. Leslie Kramer of Investopedia shares “5 Things to Ask Before Hiring a Financial Advisor” that will help you decide who to choose. As you start working with your financial advisor, you’ll be able to navigate not only the world of retirement planning, but also insurance and investing.
As wonderful as college is, it was only the beginning. Maintaining a proper budget, automating your finances, actively managing your student loans, engaging in long-term retirement financial planning and considering a financial advisor are five effective ways to make a smooth post-college transition and ensure future financial success. The key is to start now.