When you graduate and get your first job, seeing the money rolling into your bank account feels momentous. After years of scrimping and saving, you finally have a positive bank balance to spend on something other than your tuition fees, rent, groceries, or nights out.
While graduating is a big milestone and can feel like one of the first steps towards independence, it’s important not to let your newfound income go to your head. This post discusses four ways to help yourself stay out of debt as a recent graduate.
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Create a Budget
Regardless of income, it’s important to budget correctly. Not only does budgeting help you avoid overspending, but it also means you can put cash aside to do the things you enjoy and avoid a constant feeling of worry about money. Even saving a few dollars a month can help you balance your essential expenses with getting something you want.
Plenty of free online budget planners are available as well as bank accounts with built-in budgeting tools. Try to use these consistently to get the best results—if you overspend in one area, make sure you course correct in another to avoid going into debt.
Build Your Emergency Fund
Once you leave college, you will take on increased responsibilities. You might have been living in furnished accommodation, but now live in a private rental, for example. This means if something breaks, you may have to replace it.
Putting away a small amount of money each month into an emergency fund means that you’ve got a lump of cash should something happen. Without this, you might have to lean on payday loans or credit cards, which come with high interest rates. This can lock you into debt for a long time, if not indefinitely.
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Control Your Spending
Once you’ve graduated and secured a full-time job, keeping an eye on the money you spend is important. If you’re living with your parents and are paying minimal rent, it may feel like you can suddenly afford everything you want—but budgeting is crucial.
Although treating yourself on your first payday is fine and normal, try to get into good financial habits early on. You should only spend the amount your budget allows. Beware of social media comparison and buying things to catch up with your friends who may have higher-paying jobs or have been working instead of going to college, as constantly making new purchases will only get you into debt.
It sounds boring, but having excess disposable income is a chance to get ahead and get saving for bigger goals such as your own apartment—don’t let this chance slip you by.
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Deal with Your Existing Debts
Almost every college student graduates with some debt, whether it’s student loans or a credit card balance. Before you start spending any more money, you need to deal with these debts first. Otherwise, the interest will mean they only get worse.
Look at your high-interest debts first and work out a plan for paying them down. Be aware of any changes that come with graduating as well—you may have gotten beneficial rates when you were a student, but these could increase once you’ve been out of college for a certain amount of time.
It can be frustrating to have to make payments on these things first, but longstanding debts can negatively affect your credit score, reducing your chances of getting approved for things like a mortgage or a car loan.
Image of “person holding U.S. dollar banknote” by Vitaly Taranov on Unsplash