If you just graduated from college, congratulations!
Also, if you’ve scored a job or an apartment (or are just looking for one), welcome to what may be a new world of personal financial management.
Super exciting, right? OK, maybe it’s not as thrilling as other parts of post-grad life (did someone say no roommates?). But now that recurring paychecks may be on the horizon, it’s not a bad idea to have a handle on some financial basics.
Plus, being in charge of your money could help you feel good about how you’re spending it and help you save up for the exciting stuff, like a car or vacation at the same time. We've put together some tips here to help you get started.
One thing that really surprised us when we started writing about personal finance is that budgeting doesn’t have to be about not spending money (though that’s certainly one way to look at it.). We’ve realized – a little later than we’d care to admit – that budgeting can be about having money to do the things you want.
In other words, a budget can help you have the money for bigger and more delightful things than toothpaste and toilet paper.
Let’s say you want to go on a beach vacation. You’ll want to save money for things like a plane ticket, hotel, dining out, activities and maybe even a car.
But wait, there’s more! What if you also want/need to:
A budget could help you find a way to divide the money you have and essentially assign it to each of these goals. You can even use different bank accounts to make the separation feel more official. (Separate accounts may also make it less tempting to use money for things that just “pop up.”)
Ok, so where do you start?
At its core, a budget is about setting aside money for:
If this feels like a lot to tackle, you don’t have to go it alone! There are budgeting apps that can help you set goals and track spending. There’s also no shortage of articles about different ways to budget (ahem, this article has six and this one has three).
There’s also your personal network – friends may be working through similar money issues and have tips to share. Plus, you probably know a few people with a number of post-grad years behind them who could offer some guidance. (Hi parents!)
If you’ve ever run a tab, you’ve got some of the essentials of a credit card down: You’re granted an amount of credit you can use, and you’re expected to pay it back.
But unlike a tab, debt tools like credit cards have additional layers:
So how do your credit habits impact your ability to get loans or an apartment? Part of the answer lies in your credit score.
Companies that offer you credit, like credit card companies, can share your habits with the three credit bureaus (Experian, TransUnion and Equifax). This information could include things like if you pay what’s due, if you pay on time and if you max out your credit limit. This information – along with a few other details like your credit history – are converted into a number.
The credit bureaus then share this number with potential lenders, landlords or employers who may review a related document called a credit report, as part of their employee screening process.
So if you’ve been wondering why you’ve seen so many ads about knowing your credit score, this is why – they can be a pretty big deal.
You’re probably picking up on a pattern when it comes to credit: Making payments on time and in full is important. So is staying below your credit limit and not opening more credit cards than you need. Doing these things can help you build what’s considered a good credit score.
So what’s a “good” credit score versus a “bad” one? The short answer is scores typically run between 300 and about 850, and the higher, the better. A FICO score of 670 and above is typically considered good. (FICO is just one type of credit score. This article explains the different credit scores and how they are calculated in more detail.)
Regardless of which score a lender relies on, they're looking for indicators that you’ll repay money you’ve borrowed. Credit scores also consider factors we haven’t gone into here (like credit history) that you can learn more about in this guide.
Good to know: It’s possible to fix and improve credit scores. We have some suggestions on how you could do that here.
We get it, paying off student loans can be a burden. However, if you’re looking for a bright side, there is this: Making on-time student loan payments is good for your credit score because it shows that you’re a responsible borrower who can handle installment debt (debt you repay in fixed amounts until it’s gone). As with credit cards, it’s a good idea to pay your monthly student loan payment in full and on time each month. And if you have a little bit of money left over (a budget can come in handy for figuring this out) you could use it to help knock these down sooner.
If you accept a full-time job, benefits like paid vacation time and sick days may be among the first things that grab your attention. But you should also dig through the rest of your benefits. You may find some gems like a 401(k) match or a student loan repayment (aka “paydown”) plan, in which your employer chips in money to help you pay off some of your student loans.
What it is: A 401(k) is a retirement savings plan you can get through your employer. It’s an investment account where the money you deposit may be invested in assets like mutual funds or money market funds.
As of 2021, you can choose to divert up $19,500 a year from your paycheck into a 401(k) account. The money is taken out of your paycheck before taxes. You also won’t pay taxes on your contributions until you make withdrawals, which means your money could grow tax-free.
How it works: A 401(k) match simply means that for every contribution you make up to a certain point, your employer will also contribute a percentage of what you deposit.
We’re going to repeat this because it’s important: With a match, your employer is literally offering you additional money if you fund your retirement account. The chart on this page shows how an employer match can provide a significant bump to your retirement account.
Good to know: Unlike a savings account, there are age-related rules when it comes to making withdrawals from a 401(k); you can start taking money out when you turn 59 ½. Then, when you turn 72, you have to start making withdrawals, called Required Minimum Distributions every year. (If you pull funds before you turn 59 ½, you could get slapped with a 10% penalty and have to pay income tax on the money.)
If your company doesn’t offer a 401(k) – and even if it does – you may still want to check out your options for other retirement accounts. This guide we put together about IRAs may provide some additional insight on other options out there.
What it is: Employers may help you pay down student debt by supplementing your payments.
How it works: Each employer’s plan may differ. Some may have caps on how much they will pay, for example, or they may offer it only after you’ve been on staff for a set amount of time. That said, if your workplace has this plan, this benefit could help you whittle down your student loan balance.
Good to know: Money your employer provides may not be 100% free – it could qualify as income. If so, you could expect to pay income tax. Also of note: Because Covid-19 changed some the rules around these plans in 2020, it could be worth keeping an eye out for additional changes or checking with a tax professional.
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