It’s Graduation Party Season and that means that a slew of brand new High School Graduates will be receiving monetary gifts, life advice, and an abundance of unwanted questions about their future. Today we’ll focus on the first two and spare them the agony of explaining, once again, that they are undecided in their major.
Here are a few finance tips for the High School Graduate (maybe you!) in your life:
Set up a budget: Whether a recent grad is going straight to college, taking a year off, or jumping straight into the workforce, a realistic budget is essential. Estimate how much income is expected over the next few years and compare that to upcoming costs. The security deposit on a new apartment, rent, utility bills, clothing, and groceries are just a few items that you may have never had to budget for before. You can use a spreadsheet or any of the numerous budgeting apps available to help you get started.
Establish credit: Many recent graduates enter the “real world” without a credit history, which will be important for making big purchases (like a house or a car) in the future. Making on-time payments for a car loan, student loans, or an apartment can help you build good credit in the early years of adulthood. A credit card is a useful tool for building credit, but only if payments are made on time and the balance remains low. Try to pay off the credit card in full each month. While a credit card can help build credit fast, it can also ruin a credit score just as quickly.
SAVE: Protection from unexpected expenses is imperative for an individual’s financial well-being. Save up an emergency fund to help cover surprise car repairs or medical bills. Generally, it’s good to have 3-6 months’ worth of fixed expenses saved up in an emergency fund, but at the beginning, it’s just important to be saving as much as you can. If you’re going to be earning an income after graduation, also make sure to save for retirement as soon as possible. Start a Roth IRA or learn about your employer’s 401(k) plan and begin making contributions, especially if the employer will match some of those contributions.
Going from high school to college or a career is a huge leap. For many graduates, this will be your first taste of independence and managing your own affairs. Don’t underestimate the value of having a fundamental knowledge of finance early in life. Being smart with money now sets up a strong foundation for years to come.