Money Building Tips for Recent College Graduates
You’ve worked hard to earn your degree—now put that same effort into your financial future with these easy-to-follow tips! Start this next chapter on the right foot by making smart budgeting choices and financial decisions to set you up for success in your early career and beyond.
The tassels have been turned, caps tossed in the air, you celebrate with family and friends on earning your diploma, and you are ready for your first job. While the future can always seem bright for recent college graduates, knowing how to establish and grow solid financial wealth is something that is not always taught in the classroom. First National Bank and Trust is here to give you a crash course in real-life economics with these simple tips to build financial security even before landing your first job.
FNBT has been a trusted community bank in Southern Wisconsin and Northern Illinois for over 140 years. Many of us earned higher education degrees, so we've learned a thing or two about building wealth after graduation and have some insights to share about money building tips to help you on your journey to financial success.
Create That Budget-Now!
It is never too early to start thinking about where you want to be 5, 10, or even 20 years from now. Creating your first budget with goals can help in the long run by identifying strategies, setting saving limits once you start working, and how to invest.
In our blog
Keys to Long-Term Savings Plan, we outlined the basic steps everyone can take to start your budget and stick to it. Topics included:
- Evaluating current financial situation
- Deciding savings goals and creating a timeline
- Understanding various savings and investment options and their risks
- And much more
Start by taking the time to read all the topics, visit available links, and even take some notes. This will make it easier to understand more of the topics to be covered later.
Don’t Avoid Student Loan Debt
Most students rely on a loan to pay for their education, and the thought of creating a repayment plan right after graduation might be the last thing on their minds, but it’s important. Part of your budget plan needs to be understanding your loan’s structure, interest rates, and repayment options. Federal Student Aid has a great
Repaying Student Loans 101 article, that provides a wealth of information and resources to create a structured repayment plan and make it part of your regular budget.
Start Building Credit
Probably the most important step in building financial stability is understanding and maintaining good credit. A strong credit score opens up opportunities to purchase your first home or dream car, and it saves you money by qualifying you for lower interest rates compared to those with lower scores. Even if you already have a credit card while in college, it’s best to
educate yourself on how to build credit.
Key factors that can determine your credit score are:
- Payment history
- Type of credit card or loan
- Current amount of unpaid debt
- How long loan accounts have been open
- How much available credit you’re using (credit utilization score)
- Any history of bankruptcy, foreclosure, or collections
Make Your Fist Salary Work for You
Once you land your first job and the paychecks start coming in, don’t be tempted to start buying things you may not need right now; instead, make some smart choices. There will be time later to indulge when you’re more financially secure. Follow these tips to make the most out of your first salary.
50/30/20 Rule
It’s an old rule, but still very effective when thinking about how to break down your budget, especially for savings and investing. The rules are:
- 50% for needs such as rent, utilities, food, and similar items
- 30% for wants like dining out, travel, and entertainment
- 20% for savings going towards high-yield accounts, investments, and retirement
Start an Emergency Fund
Emergency funds are exactly what they sound like. With an often volatile job market, you could find yourself looking for work when you least expect it. Many financial experts recommend saving at least 3 months worth of living expenses, with 6 months of living expenses being preferred.. This could be part of your overall budget plan, but don’t include it in regular savings.The monthly amount designated for savings is for large purchases and retirement savings.
Enroll in your company’s 401k plan now
It’s probably the most common piece of advice that young professionals get, and it’s important to enroll and maximize contributions to a 401k plan as soon as possible. Most companies offer a match as part of their overall benefits plan to help employees save for retirement. It is crucial for new graduates, and all employees, to take full advantage of this match, check with your Human Resources department to ensure you aren’t leaving money on the table. At the beginning stage of your career, a Roth contribution may be more advantageous than a pre-tax contribution, so be sure to ask whether or not the company plan offers a Roth provision. We will talk more about the difference between Roth and Pre-tax later.
Get to Know IRAs
Individual Retirement Arrangements (IRAs) have been around since the 1970s. IRAs were initially created for people whose companies did not provide retirement programs, allowing individuals to create their own retirement accounts. There are two main types of IRAs: Individual and Roth. Let’s take a high-level look at both, then recommend
reading our post to dive into the details.
Traditional IRA – contribute pre-tax dollars that grow tax-deferred until withdrawals begin. Once withdrawals begin, the amount withdrawn is subject to tax.
Roth IRA – contributions are made with after-tax dollars and are not subject to taxes upon withdrawals, since the amount was already taxed when the funds were contributed.
Overall Retirement Planning - both Traditional and Roth IRAs have the same annual contribution limit, and if you contribute the maximum to one, you cannot do the other. This amount changes slightly every year with inflation. The same tax rules that apply to Roth IRAs apply to Roth 401(k)’s. Similarly, pre-tax or traditional IRAs are taxed similarly to pre-tax or traditional 401(k) amounts.
These choices often leave savers confused, wondering which may be right for them. Remember that working with a professional to receive personalized financial advice is always recommended. In general, however, individuals who are at the start of their career should consider making Roth contributions since their taxable income, and therefore tax owed, will likely increase over their career. Consequently, individuals who are later in their career will likely contribute pre-tax to immediately lower their taxable income.
An advanced planning topic is a pre-tax to Roth conversion, where an individual may convert or change their retirement savings from pre-tax to Roth. Important to note, this conversion does result in a taxable event, so working with a qualified tax professional is key. This is sometimes done in tax years when a person’s income is less than normal, and therefore the tax owed is not substantially different than what the person normally pays.
Consider Working with a Financial Advisor
As you start your career, working with a financial advisor is an expense that can be worth paying.A qualified financial advisor can help take the guesswork out of how to maximize both short and long-term financial goals and guide you through retirement options. While there are many apps and services that are either free or have low annual subscription fees, you still need the knowledge and experience of a real person.
Forbes has a great article that breaks down the various types of financial advisors, fee structures, and considerations for finding one that works best for your needs.
Count on First National Bank and Trust for Your Financial Future
It’s never too early to choose a bank that supports you at every stage of life, especially one that’s been helping people reach their financial goals for over 140 years. We can help you realize your budget needs and help you set financial goals as your career advances with our comprehensive range of products and services, including:
Contact us today to open your accounts—we look forward to watching you grow!
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