If you’ve lived off campus, you already have plenty of experience with real-world expenses: rent, gas, groceries and more. New homes, jobs or graduate schools mean new opportunities to improve your financial literacy — including learning terms like credit scores and IRA investments. From the best budgeting tools to how to make tax time less painful, we’ve compiled practical advice on managing your financial life. Fellow alumni weigh in with tips on how to smartly spend, save and — this is important — splurge.
Take your after-tax income and spend 50% on needs, 30% on wants, and 20% on savings or investments. Heard of the 50/30/20 rule? Sen. Elizabeth Warren of Massachusetts (also a lawyer with an expertise in bankruptcy) made it popular with her book “All Your Worth: The Ultimate Lifetime Money Plan.” It’s a great way to structure your budget.
Gita Kulkarni ’05, the president of a management consulting company who earned an MBA at Rice, gives a little more leeway. She says recent grads should try to live off of 55%–70% of their take-home salary. Also, set financial goals. These goals could be:
- Save up for a down payment on a house
- Pay off your student loans in five to 10 years
- Build up three to six months’ worth of living expenses for an emergency
- Improve your credit score
Your credit score is a three-digit number (850 is the max). Having good credit can help you qualify for a mortgage or get a cellphone plan or a job offer. Employers can’t see your exact credit score, but they can access your credit report. They may frown upon a report that shows you’re always late paying your credit card or other bills. So, how do you build your credit and keep it in good shape?
- Apply for a credit card.
Aim for one that meets your situation as a young adult. Or, get a secured credit card. How does it work? You make a cash deposit up front, then use it like any other card. Pick one with a low annual fee and make sure it reports to the three credit bureaus — Equifax, Experian and TransUnion.
- Do your research.
Credit Karma, NerdWallet, creditcards.com and Money Under 30 offer advice on the best credit cards for your current situation and financial profile.
Keep your credit classy
Pay off your statement balance in full every month so you don’t accrue interest.
Pay on time. Thirty-five percent of your credit score is based on payment history.
Keep tabs on your credit score. You can get a free credit report from each of the three major bureaus once a year.
Sock it away
“Save as much money each paycheck as you can, and then don’t touch it! You never know when a $100, $500 or $1,000 emergency will come up, or when you’ll have to pay more taxes than you expected.
Small hack: Stop buying coffees from coffee shops! Rice Coffeehouse will no longer be accessible after graduation, which means inexpensive coffee is no longer accessible.” — Jaecey Parham ’18, an associate producer for a film production company in Houston
Think About Retirement
1. If you commit to saving for retirement before your expenses grow, it’s part of your routine and you’re more likely to stick with it. Does your company have a 401(k) plan? If so, max it out from the get-go, says Bryan Guido Hassin ’01, especially if it comes with an employer match. It’s free money!
2. Set up a Roth IRA — an after-tax retirement account — and max that out as well. Set up automatic transfers and treat the money as already spent. What about when you change jobs? Don’t take your money out of your 401(k). That’s a mistake a lot of people make. Instead, roll it over into an IRA.
Pay Off Student Loans
Save and pay
The first thing Anastasia Bolshakov ’15 did after graduating and finding a job was to pay down her student loans. “Having that interest was going to harm me in the long run,” she says. Her method was to set aside money from each paycheck to go toward that debt.
The snowball method
With this debt repayment method, you make minimum payments on all your loans except the smallest. Funnel as much money as you can into that one. Then, once it’s paid off, move on to the next smallest loan and keep going from there.
Find a Generous Employer
More and more companies are helping employees with student loans. Ask about this during job interviews. Aetna, for example, offers matching student loan repayment help for eligible employees. So do Fidelity and Random House.
Volunteer your time
SponsorChange matches volunteers with work based on their skills, then rewards them with money to put toward student loan payments.
Need a Budget? There’s an App for That
This free app links with your bank accounts and categorizes your spending so you can see where you might need to cut back. Push notifications alert you when you have a payment coming up, when you’ve overdrawn an account or when you’ve made a big purchase.
This AI-driven app helps you track monthly expenses and save toward a goal. It shows when you overspend and helps you cancel unwanted subscriptions. It’s free, but if you benefit from its bill negotiation service, you pay a fee.
Free for the first 30 days, this app analyzes your spending and allocates a little bit each day for savings — toward an emergency fund, or maybe a down payment. After the first month, it’s $2.99 a month.
You Need a Budget (YNAB)
This is a good app to consider if you’re living paycheck to paycheck. It has a debt paydown feature where you can watch the money you owe dwindle as you pay it down. The app is free for 30 days, then it’s $5 a month or $50 a year.
Depending upon where you live, owning a home might be less expensive than renting. So don’t rule out homeownership even if you’re bogged down by debt. Here are a few strategies to make home ownership more affordable:
- Look for loans with low down payments. The U.S. Department of Agriculture gives 0% down home loans for eligible suburban and rural homebuyers. If you’re a veteran, you could also qualify for a zero down VA loan. Some private mortgage lenders also offer loans for as little as 3% down, but they might require extra fees or insurance.
- Get down payment help. A lot of grads get help from family, sometimes by borrowing against mom and dad’s house. Others connect with organizations like Landed, which helps teachers in certain areas with a down payment. Landed pays half the down payment, up to $120,000, and gets 25% of the appreciation gain when you sell.
- Become a landlord. Renting out part of your home to roommates is another way to afford mortgage payments.
- “Life Kit” from NPR has a set of audio guides (in podcast form) on any number of life topics, including money.
- “Listen Money Matters” bills itself as an “uncensored personal finance” podcast. What’s not to like? Each episode is just 15–45 minutes.
- “Stacking Benjamins” is an award-winning finance and investing podcast that uses the “science of play to make finance more approachable, interesting and fun.”
- In “Bad With Money,” Gaby Dunn (aka America’s Deadbeat Sweetheart) unapologetically examines the intersection of finances and social justice.