Graduating college may mean school's out, but you still have plenty of lessons to learn when it comes to managing money.
But setting yourself up for financial success after college doesn't have to be complicated. CNBC Select spoke with certified financial planner Faron Daugs of Harrison Wallace Financial Group, who suggests recent graduates follow these five pieces of advice to get their post-degree life started on the right foot.
1. Build up an emergency fund
Building up an emergency fund — a savings account with three to six months' worth of expenses — right out of college can help get you through some of the painful learning experiences that can define your immediate post-college life. From bailing on a disastrous first job to splitting with a partner you live with, having an emergency fund gives you the freedom to act in your best interests regardless of the financial consequences (up to a point).
A high-yield savings account is a great place to keep your emergency fund, since it helps the money you've saved grow faster than it would in a traditional savings account. Some of the best include LendingClub's LevelUp Savings for its strong APY and no monthly fees or minimum balance required. UFB Portfolio Savings took a runner-up spot for its ease of use, including its online and SMS banking availability and free ATM card.
LendingClub LevelUp Savings Account
LendingClub Bank, N.A., Member FDIC
Annual Percentage Yield (APY)
5.30% (with monthly deposits of at least $250), or 4.80%
Minimum balance
None
Monthly fee
None
Maximum transactions
Excessive transactions fee
None
Overdraft fees
N/A
Offer checking account?
Yes
Offer ATM card?
Yes
Terms apply.
UFB Portfolio Savings
UFB Portfolio Savings is offered by Axos Bank ® , a Member FDIC.
Annual Percentage Yield (APY)
Up to 5.15%APY on any savings balance; add UFB Freedom Checking and meet checking account qualifications to get an additional up to0.20%APY on savings
Minimum balance
$0, no minimum deposit or balance needed for savings
Fees
No monthly maintenance or service fees
Overdraft fee
Overdraft fees may be charged, according to the terms; overdraft protection available
ATM access
Free ATM card with unlimited withdrawals
Maximum transactions
6 per month; terms apply
Terms apply.
Read our UFB Portfolio Savings review.
To level up your emergency fund savings, automate deposits from your paycheck or bank account to help it grow effortlessly. "Systematically save money from whatever you're earning," Daugs suggests.
2. Consider consolidating student loan debt if you're overwhelmed
If you have student loans, you'll want to make sure they're as simple to manage as possible. One way to wrap multiple small loans into one loan is through a process called consolidation, which merges all of your smaller, individual loans into one with a single payment and interest rate.
It's an option available to both private and federal student loan holders (though you can't consolidate any private loans you have into the federal loan system). "Depending on whether you have federal loans or private loans, you generally can reach out to each of those institutions and then ask about consolidation loans," Daugs tells CNBC Select.
You'll want to pay close attention to the pros and cons of refinancing or consolidating your student loans. Consolidating a federal student loan with a private student loan could mean losing some of the protections the federal student loan system gives borrowers, such as repayment plans.
You'll also want to think about how the interest rate you're charged would change after consolidation. While federal student loan consolidation interest rates are based on the average of your existing loans' interest rates, the same isn't true for private student loans. Your credit score and current market conditions determine the rate you'll get with a consolidated private student loan.
With interest rates rising across the board over the past few years as the Federal Reserve fights inflation, the interest rate you'll end up paying on the consolidated private loan may be significantly higher than your current rates.
While those with federal loans will likely want to consolidate those debts through the federal student loan system, borrowers with private student loans can consider refinancing through a bank or lender. CNBC Select has done some of the research for you on the best private student loan refinance companies, and our top picks include Earnest for its ability to work with fair-credit borrowers and no origination fees, prepayment penalties, late fees or disbursem*nt fees. Citizens™ is ranked as our top choice for those with a co-signer for its co-signer release option after 36 months of on-time payments.
Citizens™
Eligible borrowers
Undergraduate and graduate students, parents
Loan amounts
$150,000 maximum, or cost of attendance, whichever is lower
Loan terms
Range from 5 to 15 years
Loan types
Variable and fixed
Borrower protections
Forbearance options available
Co-signer required?
No
Offer student loan refinancing?
Yes - click here for details
Terms apply.
3. Build up your credit score
Your credit score determines more than just the cards in your wallet. It can also determine how much you pay for a variety of financial tools, from car insurance to personal loans.
Using a credit card and paying it in full every month is one way to help build your credit score. "The key is: go ahead and put things on there. But make sure you pay that credit card bill in full every month," Daugs says. "If these are normal purchases that you would be making anyway, rather than putting them on a debit card, put them on a credit card, but then pay that bill."
Daugs suggests aiming for a cash-back credit card, which generates cash for spending on the card. Some of CNBC Select's top picks for cash-back credit cards include the Citi Double Cash® Card which offers a total of 2% cash back, with 1% on all eligible purchases and 1% when you pay your bill with a $0 annual fee. The Chase Freedom Unlimited® is our top choice for no-annual-fee cash-back credit cards for its welcome bonus and ability to transfer rewards to a Chase Ultimate Rewards card.
Citi Double Cash® Card
Rewards
Earn 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. To earn cash back, pay at least the minimum due on time. Plus, for a limited time, earn 5% total cash back on hotel, car rentals and attractions booked on the Citi Travel℠ portal through 12/31/24
Welcome bonus
Earn $200 cash back after you spend $1,500 on purchases in the first 6 months of account opening. This bonus offer will be fulfilled as 20,000 ThankYou® Points, which can be redeemed for $200 cash back.
Annual fee
$0
Intro APR
0% for the first 18 months on balance transfers; N/A for purchases
Regular APR
19.24% - 29.24% variable
Balance transfer fee
For balance transfers completed within 4 months of account opening, an intro balance transfer fee of 3% of each transfer ($5 minimum) applies; after that, a balance transfer fee of 5% of each transfer ($5 minimum) applies
Foreign transaction fee
3%
Credit needed
Fair/Good/Excellent
See rates and fees. Terms apply.
Read our Citi Double Cash® Card review.
Chase Freedom Unlimited®
On Chase's secure site
Rewards
Enjoy 4.5% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery services, 6.5% cash back on travel purchased through Chase Travel℠, our premier rewards program that lets you redeem rewards for cash back, travel, gift cards and more; and 3% cash back on all other purchases (on up to $20,000 spent in the first year). After your first year or $20,000 spent, enjoy 5% cash back on travel purchased through Chase Travel℠, 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service, and unlimited 1.5% cash back on all other purchases.
Welcome bonus
INTRO OFFER: Earn an additional 1.5% cash back on everything you buy (on up to $20,000 spent in the first year) - worth up to $300 cash back!
Annual fee
$0
Intro APR
0% for the first 15 months from account opening on purchases and balance transfers
Regular APR
20.49% - 29.24% variable
Balance transfer fee
Intro fee of either$5or3%of the amount of each transfer, whichever is greater, on transfers made within 60 days of account opening. After that, either$5or5%of the amount of each transfer, whichever is greater.
Foreign transaction fee
3%
Credit needed
Excellent/Good
Member FDIC. Terms apply.
Read our Chase Freedom Unlimited® review.
But credit cards aren't the only way to build your score. Getting an auto loan could also bolster your credit history, letting potential lenders know you're a trustworthy borrower (assuming you aren't late with your payments). "If the interest rate is reasonable and it makes sense to finance [your car], that's another means of building up your credit," Daugs says.
It's also sometimes possible to add your rent to your credit score (or other recurring expenses like subscription services) with a free service like Experian Boost™, which reports these payments to your credit report if your leasing or management company is partnered with the credit bureau.
Experian Boost™
On Experian's secure site
Cost
Free
Average credit score increase
13 points, though results vary
Credit report affected
Experian®
Credit scoring model used
FICO® Score
Results will vary. See website for details.
How to sign up for Experian Boost:
- Connect the bank account(s) you use to pay your bills
- Choose and verify the positive payment data you want added to your Experian credit file
- Receive an updatedFICO® Score
Learn more about eligible payments and how Experian Boost works.
4. Look beyond the salary when considering job offers
If you're weighing multiple job offers after graduation, Daugs encourages you to look beyond the salary when making your choice.
"A lot of times what recent college grads look at is the bottom line, 'what is my base pay?'" he says. "I always encourage them to look at the whole package, don't just look at what the salary is or what the hourly rate is, look at all of the benefits that are going to be available to you."
You'll want to consider the compensation package as a whole, including retirement benefits. "With 401(k) plans, there are some matches that may be available," Daugs adds. When a match is offered, companies will contribute an additional amount to your retirement plan up to a set percentage of your salary when you contribute.
And a 401(k) isn't the only benefit to consider. A healthcare package could be another thing to evaluate, especially if there's a health savings account available with a match. "Those are free dollars with tax benefits to you — they're not taxable to you, yet they are a means of compensation," Daugs says.
If you're still unsure, a meeting with a financial planner can help you evaluate compensation packages and create a plan to get the most out of your benefits.
5. Pay yourself first
Most recent grads have been told to make a budget but it can be tough to decide what type of budget works best for you. "Many times, I've found it helpful for people to use a reverse budget," Daugs says.
Also called a 'pay yourself first budget,' this method prioritizes your saving and investing goals by treating them as essential expenses that are paid with automatic deposits.
To start building your reverse budget, determine your expenses and how much is left to comfortably save and invest. Then, set up automatic transfers when you're paid, and spend the rest on your necessary and discretionary spending.
Daugs says that this is an effective way to build your emergency fund or start investing with small amounts. "Take those dollars out of the equation first, and learn to live on what's left."
In a time in your life when it's easy to overspend, this budget can keep your saving and investing goals on track. "You'll learn that you're not really missing those dollars, yet you're building up assets," he says.
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Bottom line
Start by establishing a budget that helps you pay yourself first and avoid too much debt. Then, consider student loan consolidation, building up credit and an emergency fund, and evaluate any job offers you may have carefully.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.