3 Steps to Instant Financial Independence for College Seniors
Now that you're graduating college and entering the real world, the last thing you want is to be forced to fall back on your parents for financial support -- assuming you even have that option, which many young adults don't. Only 57% of graduating college seniors think they're ready to be financially independent, according to a recent Credit Karma/Qualtrics survey, which means that nearly half still have a ways to go. But regardless of how confident you are in your ability to hack it in the post-college universe, here are a few steps you'll need to take if you want full control over your finances.
1. Follow a budget
Ideally, you'll land your first full-time job shortly after college and start earning a paycheck. But how will you spend that money? Will you blow it all on rent and expenses, thereby landing in debt? Or will you manage it smartly and save a portion of it for important goals? If the latter sounds more ideal (which it should), then you'll need to follow a budget to get a handle on your spending.
Thankfully, creating a budget is easy. All you need to do is figure out your monthly expenses, factor in one-time expenses, and see how that total stacks up against the amount you bring home each month. If you're left with 15% to 20% of your earnings left over, you're in good shape. If not, you'll need to rethink the things you're spending money on.
2. Get a handle on your student loans
Most students are forced to take out loans to pay for college. If you're one of them, you'll need to figure out when you're required to start making payments on your loans, and how much your payments will be, since they'll likely eat up a sizable chunk of your earnings.
If you took out federal loans, you'll generally get some sort of grace period where you don't have to start paying back that debt the moment you graduate. Federal direct loans and Stafford loans offer a six-month grace period after you graduate college before your first payment is due. For Perkins loans, that grace period can vary, so you'll need to consult the university you received your loan from. And PLUS loans don't have a grace period at all.
Once those payments start coming due, you'll generally be looking at a 10-year repayment period. However, if your monthly payment is too high under that setup, you can see if you qualify for an income-based repayment plan, where your monthly payments are calculated as a portion of your earnings. This option, however, doesn't usually exist for private student loans, which is why they're less ideal than federal loans.
3. Build credit
It's hard to emerge from college with a solid credit score, but if you don't work on building credit, you'll likely come to have trouble navigating life as a real adult. That's because without good credit, you might face difficulties getting an apartment lease, car loan, or, in some cases, even a job.
One of the most efficient ways to build credit quickly is to open a credit card and pay it off on time and in full each month. However, if your credit isn't strong enough, you may not get approved for a card of your own. If that's the case, you can try becoming an authorized user on somebody else's card (namely, a parent or sibling), or getting a secured credit card.
A secured credit card works just like a regular one, only your credit limit is linked specifically to the collateral you'll provide in the form of a cash deposit. In other words, if you want a secured card with a $500 credit limit, you'll need to supply that $500 first. The benefit of having a secured credit card is that it can help increase your score the same way a traditional card can. All you need to do is make regular payments on time, and that data will get reported to the bureaus that calculate your score.
Another option is to look into a credit-builder loan, which is a loan designed for those with limited credit histories. Credit-builder loans work like secured credit cards -- you keep a certain amount of money in an account as collateral and make payments against it. Those payments, which you'll ideally be making on time, will then get reported to the major credit bureaus to help boost your score.
Though college may have been tough, the real world is actually a whole lot tougher. The good news? If you go in knowing how to manage your finances, you'll have an instant edge as you adjust to full-fledged adulthood, and you'll end up much happier for it.
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