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After graduation, the summer can be overwhelming when it comes to personal finances. As the excitement of the big day fades, reality begins to settle in. Your new financial independence is liberating, but it also comes with its fair share of responsibilities—and uncertainties. You find yourself in a financial stage somewhere between holding a checking account and having a 401(k). While some of your friends are landing six-figure jobs, others are taking time off to travel on a shoestring budget. So, what's the next move on your financial path?
To navigate this challenging but promising period, let's break down the three key steps every fresh graduate needs to take right away.
Create a strategy for handling student loan payments
As a recent graduate, you might be lucky enough to enjoy a six-month grace period before your student loan payments begin. Take this time to assess the balance between your federal and private loans, compare their interest rates, and devise a strategy to pay them off efficiently.
Start organizing your repayment plan today. To view your loan balance and providers, head over to studentaid.gov. (Note: This is not the portal you typically use to make payments, like with servicers such as Sallie Mae.) Once logged in, select “My Aid” from the dropdown under your name. Your loan servicer(s) will be listed there. By clicking on “Loan Breakdown,” you can access a full list of your loans, including those you've paid off or consolidated.
If you’re feeling like saying “screw it,” here’s what happens if you ignore your student loan payments completely.
Start building an emergency savings fund
Even if student loans are on your mind, don’t neglect saving. If you haven’t yet found a stable job with a 401(k), now is the time to focus on building your emergency fund.
Let’s revisit what an “emergency fund” is, and how it differs from other types of savings: Your emergency fund is the cash reserve you keep for unexpected costs or financial challenges, such as losing your job, facing medical bills, or dealing with urgent car or home repairs.
How much should you aim to save? As we’ve suggested before, a common guideline is to target six months’ worth of living expenses for your emergency fund. This should cover things like housing, food, utilities, insurance, transportation, and debt payments. Expenses like vacations, entertainment, or dining out shouldn’t factor into your “emergency” savings.
If you haven’t done so already, make a list of all your spending habits, and evaluate which non-essential expenses could be redirected to build your emergency fund.
Start working on building your credit
A solid credit history will help you rent your first apartment, secure better interest rates, and save you thousands of dollars over the course of your life.
If you had a student credit card during your college years, get in touch with your card provider and let them know you’re no longer a student. They might let you keep the same card or offer an upgraded version.
If you didn’t have a credit card during college, get one now. While your aim should be to take on a small amount of debt to build your credit history, make sure you never spend more than you can pay off by the end of the month. Learn the basics of improving a low credit score, keeping a high one, and even building credit without using a credit card.
For more details, check out this guide to personal finance for recent college grads.
