I’m a Financial Planning Expert: These 6 Money Habits Can Help College Grads Become Rich
Written by
Heather Taylor
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Molly Sullivan
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College graduation season is in full swing across the United States. But just how financially prepared are post-grads for life in the real world?
In the annual College Ave Student Loans survey polling 1,083 college students, 61% said inflation has negatively impacted their saving and spending habits. The top three words college students associated with their finances are “broke,” stressful” and “saving.”
To help alleviate these stressors, post-grads can start embracing money habits to ensure they begin their adult lives on solid financial footing. These financial planning experts share six money habits to help college grads become rich.
Create and Maintain a Simple Budget
One of the first money habits college grads need to practice is budgeting.
Kendall Meade, CFP at SoFi, recommends using the 50/30/20 rule to create a simple and effective budget. Those who use this rule while budgeting will spend 50% of their income on essential expenses like rent or their mortgage, insurance and student loan payments. Put 30% toward discretionary expenses, like dining out or entertainment, and 20% toward your financial goals. This can include saving for retirement, creating an emergency fund and investing.
Pay Down Student Debt ASAP
While there is still a pause on federal student loan payments, Mark Henry, founder and CEO of Alloy Wealth Management, said post-grads should make it a priority to pay down any student debts they owe right now.
Need help trying to figure out the best way to pay off student loans? Henry recommends adding monthly payments into your budget. Doing so, especially now while federal loans are still on forbearance and there’s no interest, will make it easier than trying to cut costs in your budget later on when the interest rises on these loans. Once you’ve paid off your student debt, continue to budget or use a spending plan.
Use Credit Cards Responsibly
Using a credit card? Be sure to pay off the balance in full each month. And if you see something you want but can’t afford to buy it, don’t buy it simply because you have a credit card.
“Don’t use credit cards to purchase anything you would otherwise be unable to afford,” Meade said. “Credit cards can have very high interest rates and sometimes, if you are just making minimum payments, it can take a very long time to pay off this debt, potentially costing you a significant amount of interest.”
Build an Emergency Fund
Between Jan. 16 and 18, 2023, GOBankingRates surveyed 1,005 Americans on the topic of emergency funds. When asked if they had an emergency fund, 57% of respondents ages 18 to 24 said no.
New college graduates can start beefing up this fund now. Set aside three to six months’ worth of savings. This will help cover expenses in the event of a financial hardship emergency, like sudden job loss, without getting into debt. Meade recommends keeping your emergency fund in a safe and accessible space and avoiding the temptation to invest savings in this fund.
Start Investing
College grads can start investing as soon as they are employed.
Aviva Pinto, CDFA at Wealthspire, recommends contributing the maximum to your 401(k) plan, 403(b) plan [if you have one] and your IRA each year. These accounts accumulate tax-free. Your employer may also match a percentage of your 401(k) contributions. Henry recommends getting educated on any retirement plans offered by your employer and taking advantage of these options.
The simplest way to begin investing is by paying yourself first. Pinto recommends putting aside some money each week and putting it into the market. New college grads can open an account with Fidelity, Schwab or Vanguard and per Pinto’s recommendation, purchase an inexpensive exchange-traded fund (ETF) that replicates the S&P 500 or Global market.
Automate
One of the most helpful money habits for college grads seeking to build wealth is to automate. This includes making bill payments, putting money into savings and investing.
Meade said automation is her biggest tip for anyone who struggles with spending or sticking to a financial goal. By automating, the fund will move directly into the desired account and remove the temptation to spend the money.
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