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Budgeting & financial tips for new college grads

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Completing college is a big step. You've done the work to prepare yourself for a career and higher earning potential. Your post-college life and having a full-time income comes with new experiences. Taking the time to carve out a budget can make a world of difference for the goals you have now and in the future.

When you find one that works for you, a good budget for college graduates gives you a strong foundation for building toward your short- and long-term life goals. Knowing how to manage your money can make you feel more confident in your financial security and that you're ready for whatever life has in store.

The importance of budgeting after graduation

Your budget directs how your income is spent and shows you how your dollars are working toward your financial goals. You might think there are one or two prescriptive ways everyone "should" handle budgeting, but there are many creative ways to do it successfully. Deciding on a budgeting method that fits you depends on your personality, goals and financial mindset.

Budgeting is really about finding a way to be deliberate with your income to maximize it in a way that you find most beneficial. When you don't have any sense of a budget, you easily can spend more than you'd like without realizing it—often on things that aren't necessarily important to you.

Some of the specific benefits of budgeting include:

  • Prioritizing your needs, wants and wishes. A budget can make sure you're covering your needs and spending money on things that bring you joy without worrying that you'll run out of money before the end of the month.
  • Saving deliberately. No matter how much you choose to set aside, you're making sure you're putting away something for your future financial goals.
  • Reducing mindless spending. With a budget, you'll be more likely to consider where something fits into your financial picture before you buy it. You may realize you need or want to spend the money on something else.
  • Provides insight on spending habits. Establishing and sticking to a budget can help you avoid bad debt like high-interest credit cards or consumer loans that can damage your future financial stability. It can help you live on less than you earn.

Different ways to budget

The first step in getting started with your budget is to consider your monthly expenses, such as rent and utilities, along with other financial goals you have, such as buying a car, saving for a down payment on a home or paying down debt. Then you'll determine how you want to divide your income between your current expenses and reaching those goals.

There is a tradeoff between how aggressively you pursue your goals and your current lifestyle. Striking a balance between the two allows you to reach your goals within a time frame that's acceptable to you without sacrificing so much that you're driven to abandon your budget.

You can find many different budgeting styles to use as a guide. Some methods may work better for you than others depending on your personality or preferences.

  • zero-based budget starts with your monthly income, and you dole out all of it into specific savings and expense categories until you reach zero. While this method ensures you are mindfully allocating each dollar you earn, it can take a lot of time to manage it. Zero-based budgeting may be for you if you like digging into the details and planning for every current and future expense.
  • The 50/30/20 budgeting method is a simple one that looks at the big picture instead of focusing on individual line items. Rather than splitting your budget into several categories with various limits, you allocate 50% of your income to your needs, 30% to your wants and 20% to your savings. If you tend to feel overwhelmed by details, this method can be an easy one to adopt.
  • Another low-lift budget is the "pay yourself first" approach. You decide how much money will go toward your debts and then your savings, and whatever's left over is what you have to spend for the month. This can be useful if you want to prioritize your goals without getting into the weeds of itemizing every cost.

These are just three types of budgeting. With any system you end up using, you'll likely need to refine it along the way. Your income, lifestyle and goals will continue to change over time, and your budget should be updated periodically to reflect them.

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Tips for recent college graduates:

Learn financial tips to help start out on the right foot so you prioritize your life the way you want to now and into your future.

Starting on the right foot: Investing in your financial future

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How student loans fit into your budget

More than half of recent college graduates have student loan debt. If that includes you, you'll need to consider how those loans impact your budget. Include the monthly payment as a planned expense, even if you have a six-month grace period before your payments begin. It's a good idea to think about your student loan payments at the start of your budgeting so you aren't caught off guard when the payments become required.

Making more than the minimum required payments will help you to pay your loans off more quickly. If that's something you want to do, focus on paying down the loans with the highest interest rate first so you'll save more money over time. If the number of loans stresses you out, you could focus on paying the loan with the lowest balance first to gain momentum over time.

You also may want to consider consolidating your student loans or refinancing to take advantage of lower rates and help you simplify your payments. Certain benefits like income-driven repayment plans or forgiveness programs also may be available, depending on your loan type and current employment status.

If you are still interviewing with potential employers, ask if they offer matching retirement plan contributions for student loan payments. This option was made possible by the SECURE Act 2.0 and ensures you don't fall behind on your retirement savings while paying off your student loan debt.

Top financial considerations for recent grads

In addition to making a budget, these additional financial steps can help give you a leg up and set you up for success after graduation.

Establish an emergency fund

Before you work toward other goals like saving or debt repayment, make sure you have an adequate emergency fund. Most guidelines suggest your emergency fund should be able to cover three to six months of expenses. This will give you some cushion if you experience something like a layoff or unexpected car repairs and prevent the need to turn to credit cards.

It will take some time to build up an emergency fund. Consider how much you can afford to save each month and put that amount in an account until you've reached your goal.

Take advantage of your employer's 401(k) match

Some of the easiest money you'll ever receive is your employer's matching contributions to your retirement account. You may have a waiting period before you're eligible, but as soon as you are, aim to save at least enough to ensure you're getting every matching dollar.

To make sure you get the full benefit, you'll need to know the matching formula for your plan. Employers set these themselves, so they can vary; it's important to ask or look it up. For example, your employer may match 100% of your contributions up to a maximum of 5% of your salary or 50% of your contributions up to 8% of your salary.

Build up your credit score

Although this isn't always something that's top of mind, knowing how to build your credit score can have long-term impacts on your budget and finances. The higher your credit score is, the easier it will be to qualify for loans and potentially get lower interest rates. It can help you save thousands of dollars over a lifetime of car payments, mortgages and other loans.

The biggest thing you can do to keep your credit score high is to make all your payments on time. Having a long credit history also factors in heavily, so you may want to consider getting a credit card and using it responsibly from time to time to build up a record of good credit use.

Avoid taking on unnecessary debt

It's common for college graduates to want a new car, a more grown-up wardrobe or a nicer place to live. However, if you can't afford something right away, resist the urge to take out loans or run up a balance on your credit card.

Accruing debt right as you're getting started will weigh you down, and it can slow your long-term progress. Instead, devote a portion of your budget to saving for those things. For things like a car payment or rent, make sure your monthly budget can handle it without stretching yourself too thin.

Getting help along your financial journey

Forming a budget and sticking to it can put you on a steadier, more predictable financial path than you'd be on without one. Building up your savings and living within your means can help you avoid taking on debt, which ultimately allows you to devote more of your hard-earned money to achieving your financial goals—whether that's owning a home, funding a comfortable retirement, starting a business or something else that satisfies your sense of purpose.

If you need help coming up with the best budget for your situation or if you are looking for other financial advice for college graduates, look for a Thrivent financial advisor near you who will be glad to guide you on your financial journey.