Quick tips for financial independence after college

Budgeting finances

As your young adult transitions from college to career, they will face new spending decisions every day. Take this opportunity to sit down with your recent grad to give them some guidance about managing their finances.

First, take a close look at the amount of money coming in and going out. What do they earn, and what do they owe? To track expenses, they can download an app that makes budgeting easier. Some track daily spending or monitor bank accounts to help users review and adjust their spending.

Next, add up all the monthly expenses, including necessities like rent, food and loan payments. Then make sure to include some fun in the budget, like movies or dining out. Financial independence isn’t just about paying bills; it’s about prioritizing and making choices that fit your lifestyle. If your child loves living alone, they can save money by making coffee at home or bringing lunch to work. If they’re reluctant to give up lattes and nights out with friends, they can consider living in a smaller place or with roommates in order to cut costs.

Thinking ahead

Your recent grad just entered the workforce, but it’s never too early to start saving for retirement. The sooner they think about long-term saving, the more an account could potentially grow in the decades ahead. You can use the example of how you saved for their 529 education savings plan!

Jump-start this conversation by asking if there is a 401(k) or similar retirement plan available at the new company. Contributing to an employer’s tax-advantaged retirement plan may be the easiest way to get started on retirement savings. And taking advantage of an employer match is like getting bonus money simply for participating in the program.

If your child doesn’t have access to a 401(k) plan, they can still contribute money to an individual retirement account (IRA). Even if it’s just a little bit, with so much time ahead, small consistent contributions can grow exponentially larger over time.

Starting a new career, moving in to their own place, thinking about future plans … it’s all part of being a grown-up. Reassure them that you’re there to guide or simply listen as they develop that all-important independence.

Saving for a rainy day

Your child may feel that they need every cent of a paycheck to cover expenses, but there’s always a bit extra that can be put aside. A separate savings account can be a short-term emergency fund that’s available in case of job loss or illness.

Don’t set unrealistic goals, but rather advise your child to start saving something now — even if it’s just a small amount. Talk about setting up an automatic transfer into a savings account, maybe 10% of their income. That money will build over time.

Managing credit

Make sure your child understands that it’s important to know their credit score. Explain that this simple three-digit number will affect how much they’ll pay for loans, may impact the ability to rent an apartment and could potentially determine eligibility for a job. It reflects overall creditworthiness and is based on debt level and payment history.

While your child chips away at loan debt, remind them to be wary about owing even more. Talk about how to keep credit history as clean as possible. For instance, don’t be late on car payments or rent. Get in the habit of paying off the entire credit card balance each month in order to save a lot of money on interest and fees.

Tackling debt

For many recent grads, the biggest expense in their budget is paying off student loans. Make sure your child understands how the payment schedule works — and has a plan for managing it wisely.

It’s important to understand that, even if a loan may grant a grace period, the interest is always accruing. The sooner they start paying off the balance, the better. For federal loans, they can look into establishing a repayment plan based on income.