Graduation is a significant milestone for any young adult. However, being thrust into job-hunting, employment, self-sufficiency, and increased financial responsibility can be nerve-wracking.
University or college graduation also often comes with significant student loan debt burdens the loan you used to fall back on is now due for payment. Student loan debt has climbed steadily in the UK over the past two decades.
In England, students owe tens of thousands more than those who studied in other UK countries. As of 2022, student loan debt has risen by 1578 percent since 2000.
In 2023, a typical UK undergraduate student carried £45,000 of student debt on average upon graduation. Postgraduates carry an average of £24,000 of student debt.
Across the pond, a bachelor’s degree will set back American students an average of $38,290, according to Experian. The figure is based on mid-2023 data.
As a new graduate, you can build a solid financial foundation despite these challenges. By creating healthy money habits early and applying sound financial management strategies to cover basic needs, pay bills, earn interest on savings, and make debt payments, gaining confidence and thriving in a brave new world is possible.
Top Financial Tips for New Graduates in 2024
Today’s economic climate makes it challenging for young people to gain financial footing. Getting the first paycheck is undoubtedly rewarding, but the rising cost of living, continued inflation woes, and a difficult job market contribute to recent graduates’ woes.
With every young person’s budget stretched to its limit, where should you start? The following tips offer a roadmap to help new graduates launch their financial lives:
Start with a budget
Any solid building starts with a robust foundation. A budget is crucial to making an effective financial plan.
Understand your money patterns. Track your income and expenses over several months or years. Identify your spending categories and check where you can reduce and reallocate funds. Use budgeting apps to help you with this task. Such tools allow you to input data quickly, segregate your funds, and allocate money optimally.
Moreover, they offer reminders and notifications. Some help you automate payments when integrated with your accounts.
Not everyone ends up with a regular job immediately. Some fresh graduates prefer to explore the gig economy and may have several freelance accounts. For a fluctuating income, track your earnings and save an amount for the slower months. Set aside a part of your budget for savings and investments to start creating a cushion for gaps in employment.
There are different budgeting methods. However, these methods have one thing in common: knowing how much your financial inputs and outputs are. You can categorize your budget into fixed, variable, and debt payments. Some experts advise you to differentiate between needs and wants and plan accordingly.
It also helps to understand the 50/30/20 rule. This rule recommends you spend 50 percent of total income on needs, 30 percent on non-necessities or wants, and 20 percent on savings and debt paydowns that exceed minimums if possible. You can opt to trim down on the “wants” category—limit your dining out or shopping, for example—if you need to allocate more to urgent goals.
Flexibility in budgeting is a learned skill. Learning how to adjust your budget as your financial situation changes is essential.
Factor in taxes
Taxes are an often overlooked aspect of financial planning until it’s too late. The amount you set aside for taxes depends on your state of employment. Having a steady employer means a part of your salary is withheld for tax purposes. Being self-employed or a gig worker means paying all your tax obligations. Freelancers must set aside 20 to 30 percent of their income to avoid shocks during tax season.
Prioritize paying back student loans
Regarding student loans, you can’t afford to bury your head in the sand. You need to tackle them systematically and as early as possible. Most student loans provide a grace period after graduating before the payments begin. Make sure to maximize this time to get your finances in line.
In the UK, your repayment plan depends on your income. This amount includes bonuses and overtime pre-tax. To determine your loan and payment plan’s threshold, refer to the UK government’s site under “student finance.”
In the US, student loans are classified as either federal or private. Your repayment options will depend on which loan you availed of or whether you availed of both.
Consolidating student loans for a better interest rate and more favorable terms is possible. Digital financial services make refinancing student loans more convenient by providing all the necessary options and information at your fingertips.
With comprehensive options, you can get a competitive fixed or variable refinance rate to save thousands of dollars. In addition, you can lower monthly payments and free up more finances to accomplish other goals.
Protect your credit
In the UK, your financial health depends significantly on your credit score. It impacts your ability to secure a new mortgage, get approved for a loan, and your insurance rates. Poor credit has many consequences and can make it more challenging for new graduates to get favorable terms on crucial expenses like rent.
Obtain your credit score through agencies like ClearScore and Experian. With this knowledge, you can decide how much to allocate to bills and credit card payments.
Pay bills on time and prioritize high-interest debts, such as credit card debt. Work on paying down revolving balances. Reduce your balance on those accounts to help increase your credit score. Learn to distinguish good debt from bad debt. Good debt like a mortgage can increase your portfolio’s value over time when appropriately managed.
Understand insurance
As a young person, you must understand how health insurance influences your financial plan. Depending on your age, you may still be covered under your parent’s private health insurance plan.
If your employer provides insurance benefits, read through and understand what benefits you are entitled to and use them as much as possible. Make use of such opportunities to improve and maintain your health. Take advantage of visits to the doctor, free labs, or free dental appointments doing so saves you money in the long run.
Ensure you have the suitable types of insurance. Aside from health insurance, you may need income protection insurance which provides support in the case of income loss due to injury or illness. Note that the NHS provides comprehensive healthcare coverage in the UK.
Nonetheless, having additional private insurance through independent plans or an employer offers more choices and quicker access to benefits.
Consider investment options
Young adults can invest their income wisely and take advantage of compound interest. When you have time and decades to save, even starting with a bit of money could create a substantial nest egg.
While it is true that investing can pose a challenge for younger people because their disposable income is small, they have several decades to grow their money.
In your twenties, you can diversify your investments and choose between short-term and long-term options. Short-term investments include certificates of deposit and money market funds. Employer-matching contributions and tax-advantaged accounts provide long-term benefits towards retirement.
Learn Financial Literacy To Gain Independence Early
New graduates can get ahead in this fast-paced and demanding world by learning financial literacy and applying it as soon as possible to their finances. By being money-savvy when young, they can learn to avoid making costly mistakes that derail their goals.
Learning to create a budget, opening a high-yield savings account or checking account, forming strategies to pay down student loans faster, protecting credit, investing in diversified instruments, and accumulating sufficient insurance for emergencies all combine to create a solid foundation for security, growth, and long-term financial independence.