My social media feeds are filled with Class of 2025 college graduation photos, so I figured this would be a good time to offer up a few key money tips for new grads who are just entering the workforce.
Set a budget
Shikha Narula, who is head of consumer and small business product strategy, transformation and rewards at Bank of America (yes, that is her actual title!), suggests new grads follow a 50/30/20 budget.
Here is how it works: 50% of your earnings should be used to cover "needs" – basic essentials like rent, student and credit card debt along with car payments.
Put 30% of your paycheck into the "wants" bucket to cover things you would like but don't necessarily need, such as travel and dining out.
And the remaining 20% should be set aside for savings and investments – this money can be used for buying a home or retirement.
In addition, start directing cash into a separate emergency fund, which can tide you over during a layoff or another major financial disruption. It may take a while to fund an emergency fund to cover one year's worth of expenses. Your employer might even help.
"It is okay to build toward that. It won't happen right away," Narula says.
The hardest part is to stay disciplined, particularly when it comes to socking away money.
"It's easy to ignore the savings component," Narula says. Be sure to take advantage of employer-sponsored savings plans, such as a 401(k) retirement plan and maximize any savings matches.
Know what you owe
Student loans make up the second-highest form of household debt after mortgages, totaling more than $1.6 trillion. That works out to about $38,000 per borrower.
Indeed, paying off those loans can be a huge burden, which is why new grads should be sure to fully understand their loan requirements, interest rates and monthly payment dates.
If possible, automate your student loan payments, so you can set it and forget it.
The information above is most helpful for anyone who has an income. Incidentally, the top post-graduation fear among students is not finding a job (44%), followed by student loan debt (33%) and credit card debt (18%), according to a new study from WalletHub.
Still unemployed?
If you don't have a job yet, a budget is even more important! When you don't have money coming in and still have bills to pay, you need to obtain near-term funds at the lowest rate possible, Narula says.
"Prioritize student loans and credit card debt, and stay within your means," she adds.
What other money advice do you have to share for recent college graduates? Write to me at onthemoney@thomsonreuters.com.
Congrats to the Class of 2025!
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