More than ever, graduates leave college with student loan debt. The upside? This can encourage wise fiscal spending while you’re still in school. If you graduate with any extra cash in the bank, congratulations—you’re ahead of the curve. Perhaps you can store that money in savings or a Roth IRA.
So the question stands, how much money should a college graduate have saved? You should have at least 20% of your yearly income saved by the time you’re twenty-five years old.
Whether you’re still in college or a recent grad, here’s what you can do to secure a decent savings account.
Set Goals
If you haven’t already started keeping a monthly budget, create one now.
Note the amount of money you’re bringing in and the amount going out for expenses such as rent or mortgage, utilities, food, etc. As a rule, this should be about half your pay.
Then think about what you need or want. This can be a car or relocating to another town. Try to save at least a third of what you make for future goals. Consider a side gig or cutting back on extras like concerts or multiple streaming services.
Prioritize Student Loan Repayment
Make sure your job pays enough for you to afford food and rent first. Get one or more roommates if necessary. Then set aside at least 15% of your salary to pay off student loans. If you still can’t do this, apply for lower payments.
Don’t purchase frivolous items like clothes or a big-screen television whenever you have some extra money. Instead, pay down more of the principal on what you owe. Be sure to deduct the interest you’re paying when you do your annual taxes.
Create an Emergency Fund
Eventually, you want to save five months’ worth of expenses in case you lose your job. Choose an amount that makes sense for you. Start small. Open a separate savings account and set up an electronic funds transfer. You’re less tempted to spend extra cash if it’s automatically deposited into that special savings account.
Put Away Money for Retirement
Your retirement may be decades away, so why worry about it now? It’s beneficial to start saving for retirement as a young person. Put away money now and watch it increase. Your money will grow faster if your employer has a matching program and contributes to the retirement fund.
If you don’t work for a company that has this incentive, or any retirement plan at all, start your own. Pay yourself first with a Roth IRA. Think about setting aside even a few dollars each month or quarter. This includes bringing your lunch to work a few days a week or buying groceries in bulk to save money.
Aim for Buying over Renting
If you’re starting on your own, don’t spend more than a third of your salary on rent and everything associated with it. This includes water, gas, electric, and cable bills. Pay off all your credit cards first and knock down some of that student loan interest.
This will free up money to put toward eventually buying a home. When you get a salary increase or tax refund, put that money away in your savings account.
Take your time. Buying a home makes a lot of financial sense, but only when settled in one location for at least five years.
Begin Investing
Consider an investment plan when you’re in a stable situation, saving money each month for future goals and still having enough to live comfortably. This can help your money grow for you.
Investing isn’t easy and requires a lot of knowledge to do it correctly. Even if you’ve taken college classes in financial literacy, successfully managing an investment portfolio takes time and patience. Do your research carefully. Some young graduates succeed by picking a stable, low-cost index fund. This offers diversity with a measure of stability.
How Much Money Should a College Graduate Have Saved?
Any amount saved when you’re done with college is a good amount. Grow it to at least 20% of your annual income using these tips. Start now to enjoy a more stable financial future.