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by Hillary Patin

Money Management Checklist for Recent College Grads

Wrangle your finances so you can focus on more important things, like living your life.
People writing and planning

Going from the wonderful world of college to debt-ridden adult life can be sudden and overwhelming, especially as student debt has been on the rise. One day you’re walking across the stage to claim your diploma—feeling like a million bucks—and the next you’re the new young adult on the block, trying to figure it all out. It’s like being a freshman all over again.

And every year, it gets worse. College tuition and fees have risen more than four times as fast as the Consumer Price Index—which averages the cost of things like transportation, food, and medical care—since the late 1970s. At the same time, college graduates with full-time jobs are making less money than those before them, knocking off about $1,000 of income every year on average in the past decade.

Knowing how to manage your money as a recent college graduate is more important than ever. The sooner you wrangle your finances, the sooner you can focus on more important things, like living your life! Here’s a post-graduation checklist to get ahold of your finances, stat.

1. Figure out your student loans

Make sure you know about all of your student loans: how many you have, how to pay them, when and what amounts you need to pay, and the interest rates on each. Your college’s financial aid office and any private loan cosigner (likely a parent or relative) should be able to help you get all of this information. Once you’re in the know, you can set up a system to make paying your loans easy.

  • Make sure you’re setting aside enough money every month for monthly minimum payments.
  • If you have a steady income, you can set up automatic payments. Try setting your payments in advance of their actual payment-due date, just in case something goes wrong with the payment or your bank account.
  • Mark your calendar as a reminder to pay each month, even if you have automatic payments set up. Since I have three logins where I pay my loans, I have three payment-due dates, and set three calendar reminders in advance of the due dates. Use these reminders to send in manual payments, and to check if your automatic payments go through.

2. Prioritize your money goals

If you’ve got your minimum monthly student loan payments under control, you may be wondering, “What’s the best thing I can do with the rest of my money?” Pay off credit card debt if you have any, and add money to your savings, which should eventually consist of (at least) three things: a buffer, a 401(k), and extra loan payments.

Build an account buffer

If you don’t have savings, start by building an account buffer. Paying down loans or paying into your 401(k) won’t matter if you’re in a bind, need money, and don’t have it. Start with an account buffer (one to two weeks of your income) and gradually work your way up to an emergency fund (three to six months’ living expenses). Once you’re paying the minimum on your student loans and have a solid account buffer, you can think about bigger goals.

Defeat credit card debt

Credit card debt is typically very high interest, and it often compounds, so you’ll be paying interest on the interest accrued, unlike typical student loans. Therefore, if you have credit card debt, it makes sense to put any money outside of your bills and account buffer toward paying off credit card debt as soon as possible. Meanwhile, when it comes to spending, it’s a good idea to treat your credit card like your debit card: Don’t spend what you don’t have.

Shape your future with your 401(k)

The earlier you get your 401(k), the better. Putting money into a 401(k) compounds interest, which means that you not only make interest on the principal, or the amount you put in there each month, but you also make interest on the interest!

To get a sense of how big of a deal 401(k)s are, let’s compare two hypotheticals who just started their 401(k)s: Jon, age 45, and Jen, age 25. Jon and Jen both put $150 a month into their 401(k)s until they are 65. Assuming the money grows 5% a year for both of them, at age 65, Jon has $62,000 to retire, while Jen has $228,000. Jen saved for twice as long as Jon but made more than 3.5 times the money that Jon made. As soon as you’re on your feet with an account buffer, start donating to your 401(k), even if it’s just 2% of your income.

For you lucky folk whose employers offer to match a percentage of your 401(k) contribution: Max it out; it’s literally free money. Let’s say your company agrees to match 100% of your 3% contribution, and 50% of the next 2% you contribute—this means that when you put 5% of your income in your 401(k) every month, your company contributes 4% to your 401(k), almost doubling your contribution.

Bask in the extra-loan-payments glory

Once you’ve got your account buffer and 401(k) payments going, you can start making extra payments on your student loans. Higher payments now will save you money down the road. If you can pay more than the monthly minimum payments, you can pay with either the avalanche method (paying extra toward your highest-interest loans first, and paying less in the long run) or the snowball method (paying off the lowest-amount loans first, and paying more over time).

3. Calculate your monthly “Safe-to-Spend” number

Calculating your Safe-to-Spend number is easier and less time-consuming than creating a budget. For a low-maintenance money management plan, try this arithmetic on for size: Safe-to-Spend = monthly income - basic expenses (rent + bills + minimum loan payments + savings). That’s it!

Basic expenses are things you know you’ll be paying every month. Unlike a typical budget, these categories (rent, bills, etc.) are not meant to limit you. Rather, you’re subtracting out everything you’re already committed to paying, and seeing what’s left. Once you know your Safe-to-Spend number, you can confidently use that money in whatever way you see fit without worrying if buying something is going to cut into your bills.

If you go through the above checklist, you can know you’re making the best moves you can with your money, and you can live your life with minimal money worrying. That way, there’s more time for the good things in life.