5 Financial Steps to Take After Graduating From College

by Meg Favreau on 22 June 2012 (7 comments)

Graduating from college can be awesome, exciting, and a huge relief. But when it comes to the current job market and student debt, however, graduating from college can also feel pretty darn daunting.

But don’t worry! With a little bit of planning, you can be in control of your finances post-graduation — and set yourself up nicely for the years to come. Here are five steps you should take to conquer your finances.

1. Create a Budget

If you don’t already have one, I strongly recommend that you create a budget. Sure, you can probably get by without one — but that’s also how you end up at the end of the month with no money in your account, wondering where it all went.

To make it easy on yourself, consider using one of the many free budgeting tools available online. These tools can securely pull in information from your various bank accounts and loans, allowing you to easily create budgets, track your spending, and set financial goals all in one place. If you haven’t supported yourself in the past, it might be surprising how quickly your new paycheck gets spent — especially since, according to a USA Today article, “most young people don’t realize they’re actually taking home about $75 of their paycheck once taxes, Social Security and 401(k) contributions are factored in.” A budget helps you ensure you have all the money for the necessities — and helps you set-aside cash for some fun stuff, too.

2. Understand and Reexamine Your Insurance Policies

While you were still a student, your insurance — including health, car, life, and renter’s insurance — may have been covered by your parents or your school. But after graduating, it’s likely that you’ll be responsible for these policies – and the costs can, quite honestly, be a little startling.

The first step in your research should be to find out from your parents or school what levels of coverage you had. Then, armed with that information, you can begin researching new policies for each of the following types of insurance.

Health Insurance

Hopefully you’ll be able to find a job with health coverage. The unfortunate fact, though, is that this is becoming less and less likely. If you were on your parents’ policy while in college, you may be able to stay on it for a few more years. Have a conversation with them about it, and if you’re able to, offer to pay any associated fees for your care. Doing this will likely be cheaper than getting your own policy.

If you do not have the option of employer- or parent-based coverage, do consider getting at least a basic insurance plan. Medical debt from an emergency can cost thousands and thousands of dollars; a basic policy helps protect you from going into wild, crushing debt. You can start your search online or with a health insurance agent. Before you do so, round up all of your medical records (these are good to have around anyway); applying for insurance as an individual requires that you answer several questions about your medical history so the insurance company can determine your risk level and decide what to charge you. Other factors that can adjust your rate include age and habits.

Car Insurance

The cost of car insurance can vary drastically depending on where you live, the type of car you drive, and factors including your age, your driving record, and even your grades in school. When applying for a policy on your own, speak with a customer service representative — they can often tell you about discounts that aren’t always available through their website.

Renter’s Insurance

If you’re renting your first house or apartment, strongly consider getting renter’s insurance. Policies are inexpensive, depending on your level of coverage, and they’ll help replace your stuff in the advent of something terrible happening, like a burglary or fire. Depending on the policy, you might even be covered if your stuff is stolen somewhere else, like out of your car or while you’re traveling.

Life Insurance

There is a very good chance that you don’t currently have a life insurance policy. Typically associated with older folks and people with families, life insurance pays out a sum to your family or loved ones upon your death. Here’s what the Illinois Department of Insurance has to say about college students and life insurance:

If you are a young college student with no dependents, life insurance is not as important as it will be when you get older and are married and/or have children. For most college students, the only reason to buy life insurance is to cover funeral expenses and debts, if there are any. Your parents may already have a life insurance policy on you that will cover these expenses. If not, you should be able to purchase a term life insurance policy for a small premium.

If you are married, and/or have children or elderly parents who are dependent on you, the need for life insurance is much greater. Still, you should be able to purchase a term life insurance policy that will provide benefits to pay your debts and provide your dependents with some financial security.

That said, even if you do not currently have family members who are dependent on you, it can be a good idea to shop for a life insurance policy now. The primary reason is simple frugality — the younger and healthier you are when you sign up for a policy, the cheaper your rate will be — and you’re able to lock those rates in. (See also: Life Insurance Calculator: How Much Insurance Do I Need?)

Another major reason for purchasing life insurance is the aforementioned debt. If you have any debts at the time of your death, life insurance can cover or help cover them — instead of passing them on to your already grieving loved ones.

3. Start Saving Immediately

I’ll admit, this Wall Street Journal article on why you need to start saving now is kind of depressing — “two-thirds of students will graduate with debt that averages $25,250 in student loans and more than $4,000 in credit-card debt.” But the same article also points out something very important — that compound interest is a powerful thing, and the earlier you start saving, the most you can take advantage of it: “If you save $10 a day at age 25, you’ll have more than $1 million by age 65, assuming an 8% annual rate of return. If you start at age 35, you’ll have $445,000. At age 45, you’ll only have $180,000.”

If you have a job that provides a 401(k) retirement plan, take advantage of it. Not only will you not miss the money (since it’s automatically deducted from your pay before the check before it hits your hands), but most employers offer matching contributions after you’ve been with the company for a certain amount of time. At that point, if you don’t contribute to your 401(k), you are turning down free money.

Don’t worry if you don’t have a 401(k) plan, though, there are still several great saving options — like Roth IRAs.

4. Talk to Your Parents About Their Finances

It’s not always a fun chat, but this is a good time to have a discussion with your parents to help better understand their financial situation and your role in the family's financial future. Questions you might want to discuss include: Are they ready for retirement? Do they expect you to support them in their retirement? If you borrowed money from them for college, can you pay them back?

One thing that you should be sure to discuss with your parents, even though it can be uncomfortable, is expectations – yours and theirs – if they get sick or need long-term care.

If they don’t already have one, encourage your parents to create a living will — this document determines who will make medical decisions for them if they are unfit, and it also outlines things such as whether or not they want to be kept on life support.

It can also be helpful to discuss long-term care for your parents. Earlier this year, USA Today reported how caring for elderly parents catches many unprepared. Sudden strokes, heart attacks, and other illnesses and accidents — while we don’t like to think about them — can have consequences beyond just health. Whether it requires a stay in a nursing home, hiring an at-home caretaker, or taking time off from your job to care for your parents, long-term care can be monstrously expensive — according to the USA Today article, “The median cost of a year in a private room at a nursing home in 2011 was $77,745…And only those who have spent most of their assets can qualify for Medicaid to pay for the nursing home.”

Long-term care insurance, however, can help cover the costs of services for this kind of day-to-day care. And once you buy it, long-term care insurance is locked in — the policy can’t be canceled by the insurance company, no matter what happens health-wise.

5. Have Fun

I know that sounds like one of those stupid suggestions that everyone ends articles like this with. But I am very, very serious about having fun. While this is possibly one of the most financially tender times in your life, it’s also a time when you probably have a lot of freedom and flexibility. Plan and make room in your budget for things like travel, culture, or even just trying new foods with friends. Remember, money can buy happiness — if what you’re buying is an experience. With a little bit of planning and balance, you can experience life and save for your future.

Are you a current college student with concerns about entering the working world? Or do you have advice for college graduates? Leave your thoughts in the comments.

This article was made possible by the support and inspiration of Genworth Financial, a S&P 500 insurance company with more than $100 billion in assets. Check out Genworth's website for more information on their life insurance and long-term care insurance products.

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Guest's picture

I graduated with my masters last year and ended up being $70,000 in student loan debt. I have no other loans, but I was unable to find a job this year and could not afford to pay any of those loans off. I have been saving $300 a month- $100 towards a new card that I will need in the next 3-4 years and $200 into savings. Its not a lot, but its about 15% of my total income at the moment. Right now the economy just sucks and you have to do the best you can with what you were given.

Guest's picture

$10/day @8%. Sounded reasonable for someone starting out when I did, in the mid-70's. Of course, inflation chewed up that 8% pretty quick, making the result not look all that good. A more reasonable way to think about this is to talk about inflation adjusted earnings rate.
With today's economy, a grad getting out with student loan debt and a $10-15/hr job with no bennies might have trouble coming up with $3650/yr for savings. And 8% earnings on a small investment? Not likely. The only possible 8% money would be in stocks -- too volatile for someone starting out with college debt, no assets, and no emergency fund. He/she will be lucky to have an emergency fund by 30 or 35, at which point he/she could take on some investment risk to go after 8% -- assuming salary/wages high enough to cover student loan payments and keep a roof overhead.

Guest's picture

I can't believe how pessimistic you sound. I agree it is a rough time to graduate from college but I think it is very possible to save money and pay down debt post college. I am lucky that I majored in something that would give me decent job security but I know I will never being raking in a large salary. So I knew right from the beginning it was important to save. I was able to set aside a very decent emergency fun, start saving for retirement and make my regular student loan payments in just two years post college. The trick to it is that my living/day to day expenses are kept to a minimum. Thankfully, my student loans are not too outrageous and I live in a community in which I have a lower cost of living.

Guest's picture

Very good stuff! I think every college graduate should read and employ these. In regards to life insurance, another great reason to get it is to insure your insurability. As a life agent myself, I have tried to write life insurance for people who are 28-32 who are UNINSURABLE. Also, don't buy your life insurance online! Get an agent from a respectable company.

Guest's picture

As a current student in my junior year, this is a great article for recent grads to read and implement in their daily lives. However, I must admit life insurance is not a necessity and many young recent grads can simply not afford that extra expense in their budget.

Although it is important to start saving for retirement since social security may not be around for our generation, I encourage everyone I meet to save now! Don't wait until you graduate to start saving. Some banks will attach a savings account to your checking account for free. Every month, say the last day of each month, have a set amount transferred from your checking to your savings. At the end of the year evaluate how much you have saved and put it somewhere with a higher interest rate, like a CD.

Guest's picture

It is certainly difficult to save, especially just starting out. One thing I learned from experience is that if I wait until the end of the month to save, the money is not there. You have to pay yourself first, even if it is only $10.00 week /paycheck. Or, try to save $1.00 week 1 and then $2.00 week 2 and on and on for the year. The trick s to make it first and automatic. Life insurance can wait until someone is depending on your income.

Guest's picture

Something else that many new graduates overlook is the importance of estate planning. This is especially true for those who are married, have children, or have substantial wealth.