For many college graduates, the anticipation of stepping into the “real” world and earning steady income can be just as exciting as receiving the actual college diploma. This is a big step for most college graduates, often signaling the official transition to adulthood, which is why it’s also such a stressful time for many. Graduates have natural questions about how the next phase of their lives will unfold and whether they are fully prepared. Adding to their angst these days are the uncertain economic times.
A recent study conducted by Handshake, a career services platform, showed that nearly two-thirds of the class of 2025 graduates voiced concerns about their career prospects, citing a shaky job market and lower starting salaries as the primary culprits. Amid these concerns, the need for graduates to develop a sound financial plan, particularly given the realities of a tougher job market and volatile economic conditions, is more important than ever.
Establishing and maintaining sound personal finance strategies is a major part of “adulting” and can be beneficial in helping new graduates launch their financial lives. Although the internet and media offer an overwhelming amount of financial advice from the “experts,” below are just a few simple and common-sense tips that might help graduates create a good financial foundation:
- Incorporate budgeting into your financial habits – This is probably the cornerstone to developing healthy and effective financial skills for most new graduates. There are many different methods for budgeting, but at their core, they all help in figuring out the answer to an important question: “What are your financial inputs, and what are your financial outputs?” Or put another way, until you have some knowledge and control of how much money is coming in and going out, it will be difficult to truly manage your financial affairs. Unfortunately, the idea of creating a budget can be a scary thought for some and is a difficult concept for many people to embrace. I think largely because it’s associated with depriving yourself of something, similar to dieting or fasting. Another challenge is that many graduates fall victim to “lifestyle inflation,” feeling the urge to buy everything all at once because they’re finally earning some income. Instead of associating budgeting with depriving yourself, it may help to think of a budget as a financial roadmap designed to guide spending and saving habits so that you can both obtain the things you want while also building a sound financial foundation.
- Make saving a priority – Creating a sound financial plan and budget is only the first step to creating a good financial foundation; often, the more challenging step is putting the plan in action. A critical component of the financial plan and budget is establishing a savings goal. One way that graduates should think about saving is to frame it as paying yourself first: your future self, your vacation self, yourself in an emergency situation, etc. It’s helpful to incorporate savings planning into your budget by regularly setting aside a portion of your income. No matter the size of your income, chances are you can afford to save something. The amount of the savings is less important than building the discipline of saving. Many financial planning experts suggest setting a goal of saving between 3–6 months of living expenses as an emergency fund in the event of unexpected financial turbulence, such as significant car repairs or job loss.
Additionally, some graduates may have access to other saving methods, including an employer-sponsored retirement plan, like a 401(k) plan. If so, graduates should strongly consider participating to take advantage of the compounding returns and tax benefits. This may be a difficult concept for many new college graduates to grasp, as many may feel they have plenty of time before they need to contemplate the reality of retirement. But retirement programs, like 401(k)s, provide a systematic and streamlined way to implement a saving regimen since employee contributions are deducted directly from the paycheck. Some employers will also offer a matching or profit-sharing contribution that can boost the overall savings potential. For those graduates that don’t have access to an employer-sponsored retirement plan, saving through an IRA (traditional or Roth) can also provide a retirement savings vehicle that benefits from compounding interest and tax advantages. - Build a strong credit history – It’s important for graduates to be mindful of their credit score and credit history. A graduate’s credit score will be one of the most important components of their financial foundation going forward (either positively or negatively). It can impact a range of key items, including approval for a car loan or home mortgage, as well as the interest rate attached to these or other types of loans. Graduates should be diligent in paying their bills on time to build a strong credit score and keep a good credit history. It might be helpful for graduates to treat their bill due dates like college assignment deadlines and consider utilizing tools like auto-pay services or calendar alerts to ensure timely payment.
Another important priority for many graduates will be paying off student loans. Most student loans give the borrower a six-month grace period after graduating before they must begin paying back their loans. It will be important to understand your student loan type (federal versus private), whether the loan is subsidized or unsubsidized, and which repayment options are available to you to help in creating a suitable and comprehensive plan to pay off the loan. The Department of Education features a Student Loan Calculator on its website that can be helpful.
Graduates should also be mindful to periodically review their credit score to ensure its accuracy and can request a copy of their credit report through a number of free services such as Experian or Money Tips.
Developing good financial habits is similar to flossing your teeth, it’s a small task that when done regularly and correctly can have a great impact on your (in this case, financial) health. Entering the “real world” as a graduate can be both overwhelming and exciting, but you can set yourself up for a strong financial foundation by learning and implementing some key financial strategies now.