“Commencement” Means “Beginning”: Financial “Pro Tips” for Those Graduating Soon

Though August still feels like summer for many parts of the country, it’s also the time of year when the retailers start running “back-to-school” sales, when parents start figuring out the morning and afternoon car pool plans, and when kids start back to school.

For many college students, this may be their last “fall pilgrimage” to their campus, as they prepare for graduation, either at the end of the fall term or the spring term. This means a major life transition. After “going to school” for the past 14 or more years, the soon-to-be graduates will be transitioning from the annual academic cycle to the workforce. They’ll be facing a whole new set of challenges and opportunities as they begin building their careers. The decisions and habits they form during this time can be decisive in terms of the lifestyle and values they will build on. And this certainly includes their financial lifestyle.

In other words, this is also a time when many of us think of telling our soon-to-be graduates things that we wish we’d known when we were starting out. Not surprisingly, much of this advice is likely to be financial in nature. What parent wouldn’t want to give their child a chance to make some better decisions—especially about money—earlier in life, while they still have decades of opportunity stretching out before them?

With that spirit, then, we offer these five “pro tips” that, if followed, can set your graduate up for greater financial success and, someday, a more comfortable and low-stress retirement.

1. Don’t spend more than you earn.

This sounds like common sense, but it really isn’t all that common. Many young people have trouble differentiating between essentials and options. Part of the reason is simply that they never learned; a 2019 survey of college students found that 91% of students had never learned how to make a budget. They need to hear the “budget gospel”: set up a budget, use it to prioritize your spending and saving … and stick to it! Some good news is that this “digital native” generation takes readily to apps that they find helpful for everyday needs, so resources like YNAB or GoodBudget can be great tools to use to help them figure out where their money goes each month and get their spending under control.

2. Cultivate the saving habit.

For some folks, making a deposit to a bank account provides an actual dopamine hit—seeing that balance increase kicks our pleasure centers into gear. For others, that joy-jolt is more apt to come from buying a coveted pair of shoes or a new gadget. Those in the latter category really need to put “savings” at the top of their list of budgeted items, each month. While some statistics may indicate that Gen Z is doing a better job of saving than their Boomer grandparents, the principle of “paying yourself first” deserves consistent emphasis, because it will contribute more toward financial independence than any other single attribute.

3. Build an emergency fund.

Unexpected and unavoidable setbacks are part of everyone’s life. A car breaks down; they get injured in a pickup soccer game; their company downsizes. Most experts recommend having six months of salary in savings, so that when the unexpected hits, it doesn’t torpedo the financial boat. But some recent graduates are having trouble with this key component of financial planning; a 2023 Bankrate survey found that more than 40% of workers age 27–58 report having less savings than credit card debt. And speaking of credit card debt…

4. Keep debt under control.

Every college grad (and many who are still upperclassmen) will experience the “pre-qualified” offers from credit card companies that come flooding into the mailbox. But credit cards, while a great convenience, can also turn into a ball and chain, weighing you down with higher and higher monthly payments. And especially if you have student loans, you must stay on top of them in order to protect your credit rating.

5. Yes, you need insurance.

If your graduate is going to work for a company that provides or assists with health insurance, that’s a huge leg up. If they aren’t, you should encourage them to build the cost of an individual policy into their budget. Even though it may seem like a drag on their cash flow—especially for those with good health—if they suffer a serious illness or an accident, medical insurance is the lifeline that saves them from incurring a huge debt burden as they recover.

As with any important goal, the key to financial security is good planning. By helping your new graduate start thinking early about positive financial habits, you’re setting them on a path that will ultimately help them live healthier, less stressful lives and experience the confidence of knowing that they have a plan in place for retirement and other important objectives. For more tips on improving your financial life, why not subscribe to our free Alexa skill, “Purposeful Planning”?