Work smart and save even smarter with these tips for setting a budget as a post-grad
You recently graduated from college and (hopefully) your paychecks are reflecting that. Now what to do with all that extra money? Before booking a flight to any of the islands currently filling your Instagram feed, you need to make a budget. Between student loans and future goals, you want to start saving sooner rather than later. Think of it this way: A fancy coffee a day adds up to about $50,000 over the course of 30 years. Even crazier: If you had socked that coffee money away you could have banked not just $50,000, but, with compound interest, a quarter million.
Ready to get started?
Most graduates have multiple educational loans. Look at your interest rates and outstanding balances. Then decide if you need to refinance. “The rule of thumb is, if your loans have 4 or 5 percent interest rates, that’s pretty favorable,” says Stephen Rischall, an L.A.-based financial advisor to young professionals. “You might as well hold onto them and keep the low interest rate.” If you have anything higher than 5 percent, refinance.
Make saving money a habit. “Even if that’s $50 a month or $10 a month, I promise it will pay dividends in the future,” says Rischall. “It’s so, so critical.” There is no magic number; just be sure it’s not so high that you’re stressed about cash flow and drop the habit altogether.
“A good exercise is to spend some time writing down all your goals for things you want to accomplish in the next year, the next 5 years, the next 10 years,” Rischall tells clients. Now put them in order. Number your top 3 goals for each time period. “Then you’ve got to look in the mirror and ask yourself: Do my spending habits align with my goals?” If not, look for places to cut. “Even bringing your lunch to work a couple days a week can save you hundreds of dollars a month.”
“When you’re younger, you have a lot more time on your side for your investments to grow,” Rischall points out. If your employer offers a 401K match, participate up to the full match amount, and more if you can afford it.
You can find Rischall on Twitter @smartmoneysteve. He also does a FB live called Financial Fridays.