The path to financial stability after college has its share of challenges, particularly for today’s graduates. Recent graduates aren’t making the same amount of money as their parents and grandparents made at the same age. The cost of attending college has more than tripled in the past few decades and most school curriculums don’t include how to properly financially prepare for life after college. Highlands Community Bank is here to provide recent graduates with financial education and guide them along the financial path after college. In this blog, we’ll share some tips on budgeting, debt repayment, investing, and retirement planning.
The Current State of Student Loans
To help cope with the financial burden of college, students often rely on student loans to help cover their educational expenses. Student loans relieve some of the weight of college expenses, however, student debt has been a very hot topic in the past three years, particularly due to the impact of the COVID-19 pandemic.
In response, both the Trump and Biden administrations have taken steps to provide relief to students. The Trump Administration enacted a student loan pause which has suspended most federal student loan payments and frozen interest rates. The payment pause has continued while the Biden Administration announced the Student Loan Debt Relief Plan. This plan is designed to help borrowers at the highest risk of delinquency or default once payments resume. Student loan forgiveness has not been implemented due to litigation, so the U.S. Department of Education stated that if the litigation has not been resolved and the debt relief program has not been implemented by June 30, 2023, payments will resume 60 days after that.
The current status of things may be a big cause of stress for many recent college graduates and make financial freedom seem difficult to achieve. But regardless of the outcome, financial freedom is attainable. It may be hard-earned, but it’s well worth the effort.
Budgeting for Beginners
Creating a budget is the best way to achieve financial wellness after college! Budgeting can be a great way to stay on top of your finances and track your progress toward reaching your financial goals.
Now, you have to keep in mind that budgeting is not a one-size-fits-all solution. Everyone has a unique financial situation and goals, so you should find a style of budgeting that works best for you. First, you’ll want to assess your priorities each month; focus on the big picture. Then you can decide how to divide your income accordingly. Remember to look at the amount you’ve earned after taxes.
One of the most popular techniques people use to help manage their spending is the 50/20/30 rule. This popular rule entails splitting your income as follows:
- 50% of spending would go toward essentials (ex. debt, housing, and food)
- 30% of spending on things you want (ex. trips, shopping)
- 20% (the remaining funds) would go into your savings accounts
This rule could help you tackle your debts and come closer to financial freedom. Some of the money you save should go toward building up an emergency nest egg which can be used for unexpected major expenses, such as a pipe burst or an expensive bill after a medical emergency. An emergency nest egg should equal around 3 to 6 months’ worth of living expenses. Budgeting should make handling your finances significantly less stressful. One size doesn’t fit all, so do whatever suits your personal needs!
Easy Ways to Start Paying Off Debt
Recent college graduates and those who graduated years ago are very familiar with debt. Paying off your debt may seem scary, but the key is to act strategically. Start out by looking at the numbers. Understanding how much debt you have will empower you to create a wise plan of attack.
There are a couple of ways you could go about paying your debt off. You could go with the debt snowball technique: paying off your smallest debt first while paying minimums on other debts, then roll the amount you were paying into payments on the next smallest debt as you work up to the largest balance. Or you could try the debt avalanche technique: paying off the debt with the highest interest rate first while paying minimums on others, followed by the bill with the next highest rate, and so on.
Whichever repayment method you choose, you’ll also want to calculate a baseline budget, which is simply the minimum amount you need to pay your basic bills. Make a list of all of your essential expenses. This includes:
- Housing
- Utilities
- Food
- Transportation
- The minimum monthly payments on your bills
Take a look at your year-end bank statements so you can see how your spending broke down over the last year. This should allow you to flesh out the baseline budget which is meant to hold you accountable to your plan.
We recommend setting aside time at least once a month to knock out any tasks and see your progress. It can help you stay motivated, as paying off debt is not easy. Find ways that you can celebrate the milestones throughout your journey, like visiting your favorite restaurant or going to see a movie!
Investing for Beginners
Currently, investing and other tips for financial freedom aren’t typically taught in typical college curriculums. Simply put, investing is a strategy you can use to grow your money. Many people believe that investing is reserved for individuals with excess money, but that couldn’t be further from the truth.
There’s no better time to start investing than now, to better combat inflation and increase your chances of being able to afford the same amount of goods and services in the future. Investing makes your money work for you.
To get started, you’ll want to consider your future goals. Keeping your goals at the forefront can help you determine your investment time horizon — or the period of time you expect to hold your investments for a specific goal. It can guide you in choosing the type of investment vehicle you wish to use, which investments to avoid, and how long to hold your investment.
No matter what your time horizon turns out to be, we highly suggest that you create a diverse investment portfolio to reduce risk. The market is volatile and all investments have some level of risk. So rather than putting all your eggs into one basket, spread your money across various investments.
Investing may seem overwhelming and complicated, but there are easy ways to get you started. Some of the best investments for beginners include:
- A 401(k) or another type of retirement plan: Find out if your employer offers a retirement plan. Some companies will match a portion of your contributions. Many employers match a percentage of the salary that you contribute. Taking advantage of this could make retirement planning much easier.
- A robo-advisor: Robo-advisors are services that’ll manage your investments for you using computer algorithms. They often charge low fees and require very little money.
- Investment apps: Most investment apps on the market like Acorns and Robinhood were designed with beginners in mind. These apps function similarly to robo-advisors, taking the reigns with investing and managing your portfolio. The beauty of these apps is that you can start your investment journey with just a few cents!
Highlands Community Bank is Here For You Every Step Of the Way
If you recently graduated college, know a recent graduate, or are just curious about how to get on the path to financial freedom, look no further. No matter what, you can count on our community bank to offer support throughout your financial journey! Read other articles on our blog for more tips, or contact us if you have any questions. Never hesitate to give us a call or visit us in person. We are here to help.