Graduating from college is an incredible accomplishment and a significant life event. As your academic years will soon be behind you, it is important to get your finances in order so you can start on the path to personal financial success.
Create a Debt Repayment Plan
If you are one of the growing number of students graduating with student debt, getting on track to pay off your loans is a vital first step after graduation. Most student loans give you six months before payments are due, but the sooner you start making these payments, the sooner your hard-earned money will start adding up in your savings account.
Paying off your debt early can also save you thousands of dollars in interest. After meeting your other important financial obligations, add an extra $10, $20, $100, or more to each payment to help you quickly chip away at the amount you owe.
And be careful with your post-graduation spending habits, as racking up other debt can be a major setback that may prevent you from buying a car, a home, or traveling as you might want to down the road.
Getting ready to graduate? Here are 7 tips to help you prepare for graduation.
Start Your Retirement Savings
Most full-time employers offer a 401(k) plan, and some employers will match some of your contributions. Always take 100% of what your employer will match. That is free money from your employer. Do not leave it on the table.
After taking advantage of the 401(k) match, you can also save up to $5,500 per year in a Roth IRA (income limits apply). If you are paid twice a month, you can automatically save $229 per paycheck to reach the maximum each year. If you are paid every other week, you can bump that down to $211 per paycheck to reach the maximum contribution level.
Get Healthcare Insurance
Thanks to the Affordable Care Act, young adults can usually stay on their parents' health insurance until they turn 26. However, if your parents lose their insurance or remove you from their plan, you will need to get your own policy.
How does health insurance help you manage your finances? According to HealthCare.gov, it provides "important financial protection in case you have a serious accident or sickness." In fact, a 3-day hospital stay costs around $30,000 — a cost that "can sometimes lead people without coverage into deep debt or even into bankruptcy."
If you need temporary insurance to bridge the gap before you have access to an employer-based or Marketplace plan, look at a short-term policy which offers coverage for eligible medical expenses resulting from unexpected illness and injury.
Note that short-term polices are not ACA-compliant, meaning they do not allow you to bypass the ACA "individual mandate" or tax penalty. However, you can likely avoid this fee by claiming a"short gap in coverage" exemption if you have a short-term medical policy (or go without ACA-compliant coverage) for no more than two months.
It's also important to understand that short-term insurance is your only insurance option outside of Open Enrollment (unless you qualify for a Special Enrollment Period).
Start an Emergency Fund
Emergencies happen all the time. Cars break down. Furnaces and hot water heaters break. Medical emergencies cannot always be avoided. When the worst situations arise, you need the money to pay for it.
Avoid credit card debt or financial stress by establishing an emergency fund and saving enough to meet your needs. Most experts suggest saving at least three to six months of living expenses in case you lose your job or have a large unexpected expense.
Ready to start your fund? Follow these 5 steps from SaveandInvest.org.
Budget for Living Expenses (and Fun Stuff, too!)
Creating a budget is a core part of managing your personal finances as an adult. You need to understand both your income and expenses to map out a plan for saving and spending. Apps like Mint can help you manage your spending- and sites like Bankrate share great tips for creating a budget.
Be sure to put some money aside for fun things like going out with friends, buying non-essentials, and traveling the world- after you've met your financial obligations for the month.
After all, it's your money and you should enjoy it!