- The average recent graduate has $39,400 in student loan debt with a monthly payment of $351
- The percentage of borrowers owing more than $50,000 in student loans has tripled in the last decade
Managing money right out school can seem like a maze of financial uncertainty mixed with trial and error. On the one hand there are numerous financial responsibilities being demanded while on the other hand there’s a constant temptation to blow all your money fast. Why does handling your finances suddenly turn into this complex puzzle you ask? As Philly’s own Meek Mill best said, “Cause it’s levels to this!”. As a graduate it’s important to keep in mind however, that now’s actually the best time to begin building a solid financial foundation for your future. Here are some key areas to be mindful of as you’re starting your financial journey.
Experts Suggest 3 to 6 Months Of Emergency Savings
As one of the first financial principles to master, saving money will likely be the most difficult. The act of putting money away while somehow trying to keep your lights on and food on your table, feels totally foreign at first. Add to that the suggested total of three to six months of expenses, and having a savings account can start to feel like your odds were better off getting a 4.0 GPA. This is where your money-mindset becomes extremely critical. The reality is many Americans don’t have this amount of money saved simply because they waited too long to get started. So even if you can start saving what may seem like small insignificant amounts now, it will no doubt add up to a substantially large amount over time. The trick is to stay consistent in your saving habits and remember to pay yourself first. After all, emergencies don’t schedule appointments with your paycheck so any funds you can save now will help you avoid unnecessary debt later.
Most (Not All) Student Loans Have A 6-Month Grace Period
From the day you graduate with cap and gown the clock starts to wind down on your first student loan bill. The majority of federal loan programs actually give you an upfront six-month vacation from making monthly payments in order to land a job and secure a stable income. It’s important to note however, loan interest will almost always continue to accumulate during this time and many private lenders may not offer any grace period whatsoever. Also, it’s generally not a requirement that you wait the full six months to start making payment however, it’s certainly a good option to take advantage of. One simple strategy you can use is to redirect your same monthly loan payment amount into a savings account during your grace period. In doing so it may actually end up getting you a long way toward your suggested emergency savings total. If you’re unsure exactly how much your student loan payment will be each month try contacting the lender for a reasonable monthly estimate.
A Good Credit Score Won’t Happen Without Good History
Many graduates make the mistake of assuming they’re automatically starting out with an excellent FICO credit score. However, even if you’ve managed to avoid the various debt traps during your time on campus, it still doesn’t mean you have good credit. And that’s because the largest portion of your credit score is determined by a consistent history off paying bills on time and in full each month. Additionally, the amount of available debt you actually use (i.e. credit card limits) carries nearly just as much weight. According to Fico.com, these two factors combined, payment history and amount of debt, make up almost two-thirds of your credit score. So while there are numerous other credit factors at play, don’t expect to have a good credit score until you at least show good history in these two areas.
Ultimately, navigating the real-world of finances can be confusing even for those who are well beyond graduation day. With that in mind don’t become too overwhelmed, too soon and give up on your financial goals in frustration. Learning how to effectively manage money is a process and process simply takes time.