Graduation season is here, and it’s time to celebrate. Congratulations if you’re one of the many students crossing the stage this spring! Earning your degree is a huge accomplishment. However, as you step into this exciting new chapter, you might be wondering, what’s next?
Whether you’re stepping out into the workforce or gearing up for college life, you’re sure to experience a newfound sense of independence. And with that comes a slew of new responsibilities – many of which are tied directly to your finances. The good news is that you don’t have to figure it out alone. We’re here to highlight what you can expect from a financial standpoint and provide tips to boost your money management skills.
Getting Your First Credit Card
Once you turn 18, you’ll be legally eligible to apply for your first credit card. Some people find this exciting, while others are more fearful of credit cards. The most important aspect of credit cards is to always remember they are loans. And with every loan, you must repay what you borrow, plus interest.
The second crucial piece of advice to remember is to only spend what you can comfortably repay. Yes, credit cards are helpful in financial emergencies, such as sudden car repairs. However, too often young adults make the mistake of overspending – leaving them with debt that’s difficult to manage.
Here are a few tips to remember when you get your first credit card:
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Keep Balances Low:
When you’re approved for a credit card, you’ll be assigned a credit limit. This amount is the maximum you can spend on your card. However, you should never max out a credit card. Instead, always try to repay the full balance monthly. If you must carry a balance due to a financial emergency, try to never spend more than 30% of your available credit limit.
For example, if your credit card limit is $1,000, you should aim to keep your balance consistently below $300.
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Set Payment Reminders:
Your payment history plays the most significant role in your credit score – making up 35%. Plus, you don’t want to be late with your payment and incur costly fees. Instead, set a reminder on your phone or calendar to ensure you never miss a payment.
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Borrow Responsibly:
As you learn to manage your new credit card, keep your spending low. For example, fill up your gas tank once a month and repay the balance before your due date. This strategy will help you adjust to the concept of credit while building a healthy credit score.
Renting Your First Apartment
A significant step into adulthood is finding a place of your own. That might mean renting an apartment with friends or moving off-campus while at college. This step isn’t necessary right away post-graduation – some may prefer to live at home and save money before moving out. And that’s an excellent strategy. Whether you reach this milestone five months or five years from now, these tips still stand true.
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Housing Budget:
Ideally, your rent should take up no more than 30% of your monthly income. That might not feel realistic in today’s market, especially with rising rent prices. One way to ease the burden is to get a roommate. This tactic allows you to split the rent and other shared expenses, such as utilities.
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Living Budget:
Before moving out on your own, create a monthly budget. Think beyond rent – including items like groceries, transportation, utilities (electric, water, internet, phone), and renter’s insurance. Small things, such as household items and laundry service, will have an impact on your budget. Planning ahead allows you to manage your money more confidently and avoid surprises.
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Security Deposit:
Most landlords will require a security deposit and at least the first month’s rent upfront when you sign a lease. Since these costs can be substantial, create a savings plan before you move to avoid any financial setbacks.
Buying Your First Car
Having reliable transportation is a must for most people, especially if you’ll be commuting to work regularly. Purchasing your first car is a significant financial milestone that takes careful planning. The first step is to ensure you have a reliable source of income. Car loans typically span four to six years – marking a longer-term financial commitment.
Here are a few tips to keep in mind when searching for your first set of wheels:
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Determine Your Budget:
Take time to review your finances for the past several months. How much room do you have in your budget for car payments? Also consider fuel costs, insurance premiums, and routine maintenance. Once you estimate how much you can afford monthly, use our free online financial calculators to determine the total vehicle price.
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Obtain a Pre-Approval:
A pre-approval is a document that lets dealerships or private sellers know you’re approved to purchase a car for a set dollar amount through the credit union. Obtaining financing before you visit a dealership provides several key benefits:
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You know how much you can afford to spend.
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You gain the upper hand in price negotiations.
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You’re protected against costly dealer add-ons.
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Enroll in Automatic Payments:
Once you purchase your new car, you’re encouraged to enroll in automatic payments. This tactic ensures you’re never behind on your loan and won’t incur costly late fees. Remember, late payments will negatively impact your credit score – potentially leading to more expensive loans down the road.
Starting Your Career
Landing your first full-time job is a major milestone! With money regularly flowing into your checking account, it’s easy to want to live life to the fullest. But don’t forget your financial responsibilities, such as rent, loan payments, bills, and other expenses.
Plus, the absolute best time to start saving money is in your early twenties. While retirement might seem a lifetime away, small deposits today will grow over time into a substantial sum. Use the following tips to help keep your finances organized when starting your career:
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Pay Yourself First:
Treat your savings like any other monthly bill – except it’s a payment directly to you (into your savings account). Too often, young adults spend throughout the month, only to find there is nothing left to save. Begin by paying yourself first – then move on to bills and other costs.
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Take Advantage of Employer Benefits:
Many employers offer retirement plans that include perks, such as contribution matches. Yes, retirement might be decades away, but an employer match is basically free money. Ask your employer about possible perks and work them into your budget – your future self will thank you!
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Build an Emergency Fund:
Unexpected expenses will surely pop up, especially when you’re first starting out on your own. Put aside extra funds monthly to build up an emergency fund. Then, if life throws you a financial curveball, you’ll be ready – and can avoid costly alternatives like payday loans.
We’re Here to Help!
Congratulations on earning your degree! Take time to celebrate your achievement and revel in all you’ve accomplished. Then, when you’re ready, begin planning the next phase of your life.
If you have questions about building your credit score, obtaining your first credit card, or setting up a savings plan, we’re happy to help. Please stop by the Credit Union or call 410-687-5240 to speak with a team member today.