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Leaving school
After graduation you feel free. But big decisions — about work, life and money — can easily weigh you down. With a few simple steps, you can be well on your way to mastering life after school.
- Know the real costs of independent life.
- Create a simple spending plan.
- Plan ahead for renting or buying a home.
- Pay off your credit card balance in full every month.
- Manage any student loans you have.
- Get health insurance.
- Learn the Essentials for keeping your financial life in good shape.
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Seven steps to take when leaving school
1. Know the real costs of independent life.
Now that you’ve graduated, you may want to take that leap into moving out on your own. Before you think about renting or buying a place, make sure you understand the total cost of living on your own and set a realistic budget.
Your basic budget should include enough money for:
- Rent or mortgage payments, including deposits and down payment
- Utilities (water, gas, electric, cable, phone and other bills)
- Groceries and other food expenses
- Clothing
- Car loans, car insurance and gas money, if you drive
- A transportation budget, if you take public transportation
- Health Insurance
- Renter’s insurance or homeowner’s Insurance
- A buffer of $1,000 in checking and enough emergency savings to cover three to six months of expenses
- Money to pay off debt
- Money to set aside for retirement
- Money set aside for having fun
If you don’t have enough to cover the above saved up, consider living at home a little longer or living with roommates instead of on your own. Taking time to save up enough money before you move out on your own will help you avoid the stress of not being able to make ends meet.
- See also: Budgeting
2. Create a simple spending plan.
Once you know the true cost of independent living, you want to create a budget that allows you to spend less than you earn and also start saving for retirement. This is the one golden rule of finances that many people don’t follow — have more money coming in than you have going out.
Spending less than you earn is the only way to make sure that you don’t get in over your head with expenses.
If you have a part-time or full-time job, most likely you have a little bit of money coming in every other week. Before you go out and spend that money on extras, use your spending plan to cover your basic expenses as well as these essential money to-dos:
- Cover your basic expenses.
Basic expenses include the things you absolutely have to pay for — housing costs, basic food costs, utilities, health insurance, auto or home loan payments, transportation costs, credit card minimums.
- Pay off your credit card debt.
Set aside enough money each month to pay as much as possible. Make it a goal to pay off your credit cards in six months, starting with your highest interest balances first.
- Save at least 10% for retirement.
Try to set aside at least 10 of every 100 dollars into a retirement savings plan. If your employer offers a retirement plan through work, enroll in it. If they match — take the match. If you don’t have one through work, consider opening an Individual Retirement Arrangement (IRA).
- Have a buffer and emergency savings.
If you don't have a buffer of $1,000 in your checking account, set aside $19 each week for a year until you have that buffer. It should always be there to protect you from over-draft charges. After that, plan to save up an emergency fund of three - six months' expenses to cover you in emergencies — more, if you have a family, big expenses like a home loan or if your job isn't stable.
- Set aside money for fun.
Everyone has to splurge a little. The thing about a spending plan is it allows you to cover the essentials while saving up for the things you want. Don't deny yourself indulgences — just don't go overboard.
- See also: Budgeting
3. Plan ahead for big purchases.
A good general rule of thumb is not to rush into any big purchases. If you plan to rent or buy a home, have enough money saved up for security deposits (if you’re renting) or a down payment and closing costs (if you’re buying). If you need to buy a car, it’s helpful to know what cars are better to buy and how to price out auto insurance. After all that hard work in school, you might be thinking it’s time for a vacation. Before you do any of these things, take some time to save up enough money so you don’t take on a ton of debt when you do them.
- See also: Save for a goal tool, Big purchases
What you want to avoid is putting any big purchases on credit card. If you can cut back your spending on extras like eating out, clothes and travel for a while, that will help you build enough money to cover initial expenses. Try to pay for things with cash as much as possible, so you don’t go into debt.
4. Pay off your credit card balance in full every month.
At some point, you will arrive at an important crossroads regarding whether or not to open and use a credit card. About 60% of Americans use credit as a way to buy things they don’t have enough money in their bank accounts to cover. That leads to years and years of over-spending and overwhelming debt.
On the other hand, there are those who use credit cards for convenience and only for expenses they can pay off in full each month. It helps them get a good credit score while keeping debt under control.
The general rule is never pay with credit (especially high interest credit) for anything that loses value quickly — clothes, vacations, gadgets, etc.
5. Manage any student loans you have.
If you are coming out of college or grad school and took out student loans to help you pay for your education, it’s important to know exactly when your student loan payments start, how long they’ll last and how much the payments will be.
Look into consolidating your loans (combining more than one loan) into a single account, if that will save you money. Learn a bit about the tax deduction you might get for student loan interest because that can make the payments a bit easier.
- See also: Student loans
6. Get health insurance.
If you had health insurance through school or if you were on a parent’s insurance but are now no longer eligible because of your age, you need to cover yourself.
Often if you get a full-time job, your employer will offer you some kind of health insurance plan—but not always. If you don’t have health insurance through work or are still looking for a job, you can compare prices on private plans and pick coverage that is right for you. Even cheaper coverage is better than none.
So many people fall into the trap of thinking, “I’m healthy — why do I need insurance?” But a flu epidemic, a fall on the ski slopes, an ice storm that causes bad accidents — any one of these could wipe out your finances, saddle you with tons of debt or worse, just because you weren’t covered.
- See also: Protect yourself, Health insurance, Ask a Question
7. Learn the Essentials for keeping your financial life in good shape.
Taking control of your finances when you’re just starting out means you set yourself up on a path to success now and in the future.
Imagine five years from now when you’ve settled into a job that you like and which pays you well, you have no credit card balance, you live in an apartment that you like and you even have a little cash to save up and spend on things you want like technology, movies and vacations. That’s the kind of picture you want to try to paint for yourself — we call it the good life.
There are seven basic Essentials you can follow to get you there:
