For many recent college graduates and young adults, personal finances are a source of anxiety. Rising tuition costs have led to higher average student loan debt, leaving many graduates feeling behind financially before they even start their career, experts say.
Many say they feel unprepared to face the financial responsibilities and burdens that come after college, according to a 2024 survey of 500 Class of 2024 college graduates by Earnest, a student-centered financial planning company. The survey also found that a vast majority are delaying major life goals due to debt and feel ill-equipped to budget and repay their loans, while 16% said they would not have gone to college if they had understood how much they would owe afterward.
At the same time, experts say some professions struggle to offer starting salaries that keep pace with the rising cost of living, leaving many graduates financially vulnerable.
“We’re at a really difficult time and it’s tough for them,” says Stacey Black, lead financial educator at Boeing Employees’ Credit Union. She adds that many recent college graduates and young adults feel societal pressure to purchase a home or car or start a family, but don’t feel like they can afford it.
“There’s so much pressure to live the American Dream and do the right thing. Well, what is the right thing? You have to decide what the right thing is for you individually.”
A mix of discipline, saving and patience are key to achieving financial goals, experts say. Here are four tips for financial planning after college.
Save As Much As Possible
Whether it’s for an emergency fund, medical expenses, life goals or other living costs, a primary way to help alleviate financial anxiety is to build cash savings, experts say. This takes discipline and being willing to sacrifice immediate pleasure for future financial gain.
Experts say young professionals often think they can wait until later in their career to start saving, but the earlier they start, the more they save.
[Related:Life After College: Tips for the Transition]
“I encourage people to save as much as they can for as long as they can,” says Andy Smith, executive director of financial planning for Edelman Financial Engines. “Any amount that you can save is a great starting point.”
He urges people to start by setting aside at least a month’s worth of living expenses. If that’s not feasible, start by saving two weeks’ worth of cash and building on it. Those who work during college or high school should start saving then, experts say.
“If you can just put your head down and put one foot in front of the other and just kind of go on autopilot and not think about it as best as you can, you really do have the opportunity to see some of those incremental changes build up to something over a period of time,” Smith says.
While slow growth may be discouraging, a little can go a long way for both short-term savings and long-term goals such as homebuying or retirement, experts say.
For those with larger recurring expenses — even something like a yearly vacation — Black suggests saving a portion of the overall cost each month rather than waiting to pay it all at once. It can be helpful to set up separate bank accounts for certain expenses and avoid activating a debit card or otherwise accessing that account, she says.
Contribute to Retirement Funds
While it may be tempting to keep retirement contributions low to pay for expenses early in your career, Smith says one of his biggest tips for young adults is to pour as much as possible into a retirement fund, such as a 401(k), 403(b) or an individual retirement account. It’s another area of saving where you can “make time work for you,” he says.
It’s important to think about it not in terms of dollars but percentages, he says. Many companies match employees’ retirement contributions, so he recommends contributing at least enough to get the full company match.
“Then turn on the auto escalators so each year you get that additional 1% in savings,” Smith says. “Over time, as it goes for six, seven, eight or nine years, that’s an additional 6% to 9% being added in the 401(k). Figure out what you can carve out of every dollar that you bring in. Once you have that, really try to think as long term as possible. Get the money working for you somehow in this investment opportunity.”
[Related:5 Ways Parents Can Do College Financial Planning]
Set a Budget
Creating and sticking to a budget may not be the most fun thing to do, experts say, but it’s crucial to avoid living beyond your means.
“While a budget may make you feel like you are limiting yourself, you must keep the bigger picture in mind in the long run,” says Brian Steiner, executive director of Life Happens, a nonprofit that helps educate consumers on insurance policies and financial planning.
“For most people just starting their careers, they are often getting access to more money than they had before,” he wrote in an email. “It’s important to sit down and assess your fixed expenses and what you can afford so you get a good grasp on your discretionary income.”
This may be difficult for those fresh out of college who are used to keeping a busy social calendar, but Black says it’s important to remember that setting a budget doesn’t mean saying no to everything.
“Give yourself permission to spend, but make sure you budget for it,” she says. “If you haven’t budgeted a weekly amount, then you’re going to feel like you can’t spend, and then if you’re like me, you’re going to spend more. I think a lot of people do that when they’re feeling overwhelmed.”
Steiner encourages people to regularly evaluate their monthly or weekly spending and see where they can cut expenses and reallocate that money to a savings account.
Experts also caution young adults against trying to keep up with peers by spending money on things they can’t afford. Living with a roommate or parents for a time can help cut expenses and make space for savings.
[Read: 10 Job Search Tips for College Seniors.]
Aggressively Pay Down Debt
The average student loan debt continues to hover around $30,000, according to U.S. News data. Students may also carry credit card or car loan debt, all of which must be factored into a budget. Getting rid of debt quickly should be a top priority, experts say.
Experts typically suggest first paying down debts that carry the highest interest rates, which in most cases will be credit cards. Those with private student loans may also want to pay them down quickly, as they typically have higher interest rates than federal student loans.
While subsidized federal student loans won’t accrue interest while a student is enrolled in school at least half time, unsubsidized loans will. Those who can afford to make interest payments while in school should do so, even if it’s around $25 a month, says Earnest CEO David Green.
“It doesn’t seem like a lot. It seems like something you can do,” he says. “Even someone with no job can usually come up with $25 a month. It’s crazy the amount of interest that saves you over the life of the loan, just by making those payments.”
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Financial Planning For Post-College Life originally appeared on usnews.com
