Are you a recent college graduate, and your graduation money is burning a hole in your pocket? It is crucial for your financial future that you know how to make your money work for you after graduation by organizing your finances and maximizing your savings and earning potential. Yes, it would be more fun to take the money to Vegas for the weekend and enjoy it right away, but is instant gratification worth it? What happens when the money is gone and the weekend is over?
Don’t you think you will wish you had set yourself up and learned how to make your money work for you? Well, if you have decided you want to make an intelligent choice for your finances, here are some smart decisions you can make with your graduation money. These decisions will fill your pockets for the future with passive income from smart investments and smart savings in high-yield savings accounts.
The First Step: Know Where You Stand
You probably want to jump right in open investment accounts and spend the rest on yourself, right? Sadly no, that would not be the best option to start with. The first step to setting yourself up with stable finances is to learn about the best organization for your incoming and outgoing income each month. You will also need to organize your bills with their due dates and identify how much if any, debt you have.
Increase Financial Literacy
There are online courses available online that will show you how to set yourself up to pay off your debt, organize your finances, and show you how to set up a healthy budget that will help you save for your future. You can also look at online videos or blog articles that will give you a helpful but often more basic idea of starting.
Increasing your financial literacy and knowing where you stand with money is the first step to putting that extra graduation money to good use.
Set Goals for Your Future
Setting up goals for yourself after taking an online course or research with blogs and videos is a great way to keep moving forward on having your money turn into savings and passive income. The last step helped you get a basic budget set up, so you are covered for everything you need. Now you can start to think about what you want for your future finances. Do you want to save for a trip? Learn how to or start investing? There are so many options you can choose to set attainable financial goals for yourself. Are you ready to decide what your goals are?
Create Your Budget and Savings Journal
You have worked so hard to learn about what you need to do to successfully create and live on a solid basic budget. You have also thought about what you want your finances to look like in the future, and you have set goals to get to where you want to be by making your money work for you. Now it is time to keep track of your daily finances. What is coming in, and what is going out each day. The best way to use your journal successfully is to keep track of everything you spend and earn daily, down to the last penny.
You can use a variety of mediums for your journal. Many automatically think of a pen and paper, then it goes back to “I don’t want to have to carry that around,” but it can be any medium that works best for you. Do you use your phone or tablet for everything? Great! There are budgeting apps like Tally where you can keep track of all your finances in the same place and pay off your debt.
You can also make a google doc or forms sheet and keep the app on your device so you can update it anytime you need to. If it is easier for you to keep everything on one spreadsheet since you use it for your budget, you can load that onto google and keep a mobile version. You are a college graduate now. If you don’t keep track of your finances, who will?
5 Ways to Make Your Graduation Money Work for You
1. Start or Grow Your Fund For Future Emergencies
While not the most exciting option, an emergency fund is crucial for making your money useful. Everyone should have one financial goal: to stay out of debt and get out of debt if you are in debt. You don’t need to remain 100% debt-free, as some debt, such as a mortgage, is not bad debt to have, but having an emergency fund will ensure that you have the money you need if there is an emergency bill you were not planning on having to pay, such as a surprise medical bill.
If you have an emergency fund, you will never have to worry about putting a large unexpected bill on credit, which avoids unnecessary credit card debt. As you decide everything you will do with your current funds, choose how much you can put into your emergency fund with each paycheck. Once you do that, make sure the amount fits into the budget you put together before starting this part of the process.
Then make sure you transfer that amount into your emergency fund with each paycheck and “forget” it is in there until it is an emergency and you need it. Even if your budget is tight, we have all been there, especially with what 2020 was like, just a lot of small amounts at first from each paycheck and put larger amounts in from windfalls such as your graduation checks.
2. Create or Bolster Your Retirement Accounts
Yes, retirement, it’s true that it is hard to believe that as a college graduate that you have to start thinking about retirement already, but the sooner you start saving and investing for your retirement, the better. Some apps will help you, such as Acorns, guide you to saving, investing spare change, and sticking to a budget.
Investing small amounts, such as your spare change, will add up over time, and you will be able to invest more as your accounts build! Start planning for your future by kickstarting your retirement fund with some of your graduation funds and when you retire with no financial worries. You will be thanking your younger self for thinking ahead!
3. Start An Extra Cash Account
This account should be used as a backup account. You can put a small amount into it from each paycheck, and you can put a larger amount in for one-time windfalls. Check your budget before you decide how much you are putting in, similarly to your emergency fund. When you have a weekly budget you are sticking to, and you have an expense that doesn’t fit into your budget but is also not an emergency, like a surprise bill for $3,000 from the dentist, but it’s $100 on food for a dinner party, or you need to buy a birthday gift.
This account is there for you, so you don’t have to put miscellaneous charges on credit or dip into your emergency fund. Once you start using an account like this, you will wonder how you ever lived without it!
4. Start By Investing Small
If you have no experience investing, you may want to consider starting with an app, so you can learn how to invest and achieve successful results. It may be a good idea to research the companies you are interested in and use part of your graduation fund to make some investments. Once you start bringing in more income through passive and active income, you can invest more, and you will be knowledgeable about what you are doing. That will only help you succeed.
5. Set Up Separate Accounts for the Things You Want to Save For
What have you been dreaming about doing that you can’t pay for all at once because it’s way too expensive? The best way to organize and save for the big stuff without touching your emergency or cash flow accounts. Some apps will help you set up multiple accounts to save for things, so you have more and less guided options for this. As always, make sure you fit your new amounts into the budget before committing yourself to anything.
So, how will you make your graduation money work for you? Planning for your future and making sure you are on a positive path to a lifetime of financial success is worth all the time and effort it will take to set yourself up, and you will be in a much better position if you choose to.
Start by educating yourself, knowing where you stand, and planning for your future. Once you’ve done the work, consider putting your graduation money to good use with one of the suggestions above.
This article originally appeared on Wealth of Geeks and has been republished with permission.
Tawnya is an elementary special education teacher by day and co-blogger at Money Saved is Money Earned by night.
She holds an Honors BS in Psychology from Oregon State University and an MS in Special Education from Portland State University. She has had a pretty successful writing career, first as a writing tutor at the Oregon State University Writing Center, and in recent years, as a freelance writer.
Tawnya and co-blogger Sebastian have a wealth of knowledge and information about personal finance, retirement, student loans, credit cards, and many other financial topics. They teach people how to save money, make money, and understand money.