If you’re like most graduates, your cap and gown came with a ton of gift money from family and friends. Is all that cash burning a hole in your wallet? Before you dump your new nest egg on the latest smartphone, think about your future. If your new degree didn’t come with financial planning classes, you can still start your economic future off right. Use that money wisely with these four smart tips.
Start an Emergency Fund
Students who get a nice chunk of change after graduation can put that cash to good use. Financial experts, including Dave Ramsey, suggest starting out your first phase of adulthood with an emergency fund.
Deposit your graduation money into a savings account. Your life is about to change, and unexpected bills happen to everyone. Having a cushion in the bank is a smart strategy. Be prepared with at least $1,000. Then work to stash away up to three months’ worth of expenses.
Tackle Those Student Loans
Paying off Sallie Mae should be a top priority once you have your diploma in hand. You don’t want that debt hanging around for the rest of your life. For graduates of Wisconsin universities, for example, the average bachelor’s degree takes 19.7 years to pay off. By then, you may have kids of your own heading off to college.
If you have a job lined up, don’t wait for your grace period — typically about six months — before you start paying on your loan. Any lump sum payments you make right away will reduce the interest you’ll have to pay later.
Plan for Your Retirement
You’re never too young to start banking on your future. Retirement probably feels far away, but the magic of compound interest makes saving now one of the best ways to use your graduation money.
If your new degree comes with a job and a 401(k), start putting money in it. You can also open a Roth IRA and use that graduation dough as your first deposit. Use this handy calculator to find out how much you can earn in interest payments. You can turn $500 a year into $132,560 for retirement by setting yourself up in your 20s.
Take control of your money and all your tomorrows by investing. It might sound a bit scary — like something your parents and their friends talk about — but you too can take advantage of those returns. Use your graduation money and jump right in. Start with a mutual fund and a broker. A professional investor will help you spread your wealth over different stocks. This strategy will increase your chances of making more money.
You do have to pay a fee to a broker, but it’s worth it to have the expert advice. You worked hard in school, and the big bucks you make investing are your reward. Make them work hard for you now.
After the commencement ceremony is over and the whole family has given out hugs, it’s time to face the tough choices. Be smart about your money, and you’ll build yourself a comfortable future.