The transition from college to post-graduation life can be challenging, especially if you’re managing your own finances for the first time. Laura Seery Lenn, Sharon Pryse/Trust Company Director of the Masters Investment Learning Center at the University of Tennessee, Knoxville, Haslam College of Business, offers some strategies to help recent grads navigate common financial challenges and lay the groundwork for a secure financial future.
Build a Budget Around Your Priorities
To start your post-college life on the right financial foot, one of the most crucial steps you can take is to carefully consider your priorities and plan your budget accordingly. Begin by listing your essential expenses such as rent, utilities, groceries and transportation. Next, allocate funds for debt repayment, savings and investments. With a clear picture of where your money needs to go, you can make informed decisions about discretionary spending.
Lenn recommends following the 50/30/20 rule of budgeting. “Allocate 50 percent of your income to essential expenses, 30 percent to discretionary spending and 20 percent to savings and debt repayment,” she says. “According to a 2022 survey by U.S. Bank, only 41 percent of Americans use a budget, but those who do are more likely to feel financially secure.”
Don’t Wait to Start an Emergency Fund
Unexpected expenses are an unavoidable part of life, but having a dedicated emergency fund can prevent them from causing financial stress. To prepare for surprise expenses, regularly set aside a portion of your income in a separate, easily accessible savings account. Consistency is key — even if you can put away only a small amount each month at first, it will add up over time.
“Strive to save three to six months of living expenses,” Lenn advises. “A 2023 Bankrate survey found that 25 percent of Americans have no emergency savings at all, which underscores the importance of starting an emergency fund early.”
Take Advantage of Employer Benefits
As soon as you land a job, ensure you fully understand and utilize your employer benefits, as benefits like health insurance and retirement plans can make a huge difference in building a secure future. Thanks to the power of compound interest, starting contributions to a retirement plan such as a 401(k) or 403(b) early can have significant long-term advantages.
“Some employers offer matching contributions, which is essentially free money for your retirement,” Lenn notes. “Aim to contribute at least enough to your retirement plan to get the full employer match. According to the Employee Benefit Research Institute’s 2022 Retirement Confidence Survey, only 60 percent of workers feel confident about having enough money for a comfortable retirement.”
Consider Income-Driven Repayment Plans for Student Loans
Student loans can feel overwhelming to recent grads entering the workforce. In 2023, the Federal Reserve’s Student Loan Debt Report found that 43.2 million Americans have federal student loan debt, with an average debt balance of $37,693. Income-driven repayment plans adjust monthly payments based on your income and family size, making loan bills more manageable. After a certain period, you may even qualify for loan forgiveness.
Lenn suggests, “Investigate options such as the Revised Pay As You Earn (REPAYE) plan, which caps your monthly payment at 10 percent of your discretionary income and forgives the remaining balance after 20 or 25 years.”
Live Below Your Means
To set a strong foundation for your financial future, strive to keep basic housing costs such as rent and utilities at no more than 30 percent of your income. This might mean living with roommates or staying with parents longer to free up money for savings, debt repayment and investments.
“A 2022 Pew Research Center study found 52 percent of young adults aged 18-29 living with their parents — the highest share since the Great Depression,” Lenn says. “It might be tempting to upgrade your lifestyle with your first paycheck, but maintaining a modest lifestyle can provide financial security.”
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Stacy Estep, writer/publicist, sestep3@utk.edu
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