Congratulations on getting your college diploma! Take a deep breath and relax for a second. Now focus on getting a job. If there aren’t any jobs in your field of study, find a job outside your field. It will allow you to obtain experience, work history, and money.
After you graduate, you’ll probably have a lot of expenses you may not have had in college. Developing a budget is the best way to put everything into perspective so you don’t lose track of your spending and your money is allocated to the things that are most important to you.
As you develop a budget be sure it includes saving for an emergency fund. Although it may take a while to get there, try to build the emergency fund to at least $1,000. Having an emergency fund will help prevent you from going into debt if you have an unexpected expense, such as a medical bill.
As you are creating your budget and establishing an emergency fund, look at the current debt you have. Besides student loans, the typical types of debt owed by new college grads include car loans and credit cards. Get hyper-focused on paying off all the debt that you have outside of your student loans. Pay these off a quickly as possible, paying any extra money on the smallest one while making minimum payments on the larger debts, including student loans. The key to being financially stable is not accumulating any more debt!
Once your other debts are paid off it’s time to tackle your student loans. According to Forbes, the best way to pay off your student loans quickly is to refinance them to a lower interest rate. Many lenders now offer some form of employment protection and other hardship benefits if you later lose your job or can’t afford your payments.
If you can’t lower your interest rate significantly. Refinancing is not a great idea, because you will give up certain student loan benefits such as forbearance and deferral.
Forbearance allows you to pause your student loan payments, but you must be up to date with the payments and interest continues to pile up if you request forbearance. Deferment is similar to forbearance except interest does not accrue during the period of time that your payments are deferred. Not all student loans will allow this and it may mean losing the potential of repayment incentives that could reduce the interest rate. There is a lot of fine print if you are applying for forbearance or deferment—make sure you read all the terms and conditions.
Be sure to check with your new employer to see if they have a plan to help you pay off your student debt. If your company offers assistance with student loan payoff, take advantage of it!
To help you with a financial roadmap, check out the Compass Money Map on Compasscatholic.org/Resources. The map lists 7 destinations and each destination has several steps. Complete the steps in each destination in order and you will build an organized financial plan.
The map shows that student loan debt is considered Consumer Debt in Destination 3 and it should be paid off prior to saving or investing. Different financial gurus will give you different answers about when you should start investing. All of their answers hinge on interest rates—both the interest you are paying on all your loans and the interest you are earning on your potential investments.
Many will say that if the interest rate on the loan is below 4% and you expect to earn 6%-8% on your investments you should start investing. But if the interest rate on your student loan is high—above 6% you should focus on paying off your student loans before investing.
One thing to consider about saving and investing is company matching investment programs. Many employers will offer to match 1%-5% to the amount you invest in the company 401k. This is free money and you should definitely take advantage of it.
A note of caution—some company matching programs restrict their contribution to shares of company stock. This isn’t bad, but pay attention to the diversification of the money you are investing. If possible, your company stock should be less than 5% of the total you have invested.
Also, keep in mind the difference between saving and investing. Saving means putting money in a savings account—drawing very low interest and almost no growth, but having the money readily available to use at any point in time. Investing is more long term. It’s money you will put away and ignore because you won’t need it for many years.
Last, but certainly not least, seek godly counsel when making financial decisions. Your parents and grandparents have a lifetime of experience and whether or not they fully understand your lifestyle, they can offer advice. They know you best and love you the most.
In the Bible, Sirach 32:15 says, “Do nothing without counsel, and then you need have no regrets.” So take advantage of the years of wisdom and life experience your parents and grandparents would love to offer.
Listen to the Manage Your Money God’s Way podcast for additional thoughts about how to tackle finances when you graduate from college.