Top Financial Tips for New Graduates
In my place of work I come across a lot of new graduates joining our company, fresh from University.
This is such an exciting time in their life, as they finally start to earn their own money and create their own lifestyle. It can really be a make or break time in their financial journey.
I’m writing this post in the hope that it helps people in this position. I wish I’d had some guidance at that stage in my life. I would have been much further ahead by now! Seeing some of the decisions made by our current graduates, I wish I could give them a helping hand with their finances!
None of this is financial advice, but simply suggestions based on my own experience. You should obviously do your own research and decide the best way forward. This is my own take on the best way to succeed as a new graduate. It applies to those in a similar situation – full time employees at the start of a professional career.
Step 1 – Keep Your Student Lifestyle/Spending
The most important point to make is that you should do your best to keep a low spending base. The majority will be used to living off a small loan amount at University. If you can manage to keep your spending low as you move into the world of work, you will be setting yourself up for success! The topics of frugality and minimalism should be high on your reading list at this point!
A huge advantage you can give yourself in this area is avoiding buying a car. Assuming it isn’t a requirement of your job, maintaining a car-free lifestyle can save you a huge amount of money in the coming years.
The longer you can delay buying a car, the better. So far, I’ve managed over 7 years of work without a car so far! It’s a fairly easy thing to keep up, but I can’t imagine going back to being car-free if you have already bought one early on.
Step 2 – Max Company Pension Match
One of the most important points we covered in How Do You Save for ‘FIRE’ in the UK is maxing out your company pension match. I’ve seen numerous new graduates tempted into opting out of a company pension. They often think the extra cash would be more useful. This is a very ill-advised approach for most people.
Most companies will match the first few percent you put into your pension. If you opt out of this, you are simply refusing free money from your employer!
Step 3 – Pay off High Interest Debt
If you have any credit card / high interest debt, you should immediately tackle this. The last thing you need is a burden of high interest payments dragging you down. Get stuck into this as soon as you possibly can!
Whether you should pay off student loans is an entire topic of its own. This will largely depend on your expected future earnings. If you will earn a lot, you are often better paying them off. If your earning will stay low/moderate, it can sometimes be better to ignore the debt, treating it as an additional tax. Much has been written about this elsewhere so I’ll leave it there and simply suggest you do your own research.
Step 4 – Emergency Fund
Now that you’re in a position of zero (high interest) debt, you can start the serious saving.
The first port of call in any FIRE plan should be to accumulate an ‘emergency fund’. As we explained here, this means saving enough money to cover roughly 6-12 months’ worth of expenses.
An emergency fund is particularly important for a graduate. If you have just entered the world of work, you can often be seen as the most disposable employee in the organisation. Last in, first out!
If the worst was to happen and you lost your job, you want to be in a position to be able to sustain yourself while seeking new employment. An emergency fund will allow you this flexibility and take away a lot of stress.
Step 5 – ISA
Once an emergency fund is established, you should start saving into an ISA. If you’re pursuing FIRE, you will want to learn about Stocks & Shares ISAs. They allow you to save into the stock market while being sheltered from future tax. If you haven’t already heard of the Lifetime ISA (LISA) you should look into these too!
Assuming you aren’t a higher rate tax payer (over £50,000 for the 2019-2020 tax year), we consider this a better approach than saving extra into a pension, which would be inaccessible until much later in life. Again, for further detail see this post.
Step 6 – Pay Rise = Savings Rise
As a fresh graduate, you are in a very strong position to increase your salary in the coming years. In my own career, I’ve seen my salary double in the 7+ years since graduation.
If you can manage to follow Step 1 and keep your expenses low, you will be in a position to put any extra salary directly into savings. This will significantly increase your ability to reach financial independence.
The biggest factor stopping most people from reaching financial independence is lifestyle inflation. Every time they get a pay rise throughout their career, they increase spending to meet their new income. If you can settle into a lifestyle you’re comfortable with early on, you will be able to divert any future pay rises into savings instead.
You may need to increase your spending slightly over the coming years. But the key is to be mindful of any increases you do make. Make sure you are getting genuine value out of any additional spending.
Some people prefer to allow themselves a certain percentage of their pay rise as extra spending while saving the rest. Whatever approach works for you, as long as you aren’t blowing it all on new ‘things’, you will be in a strong position to save a high percentage of your income in the next few years!
Prove Your Worth
A key point to make on the topic of pay rises is that you should seek to stand out from the crowd. If you can show your bosses that you are above average, you will tend to be rewarded accordingly. As soon as I started work I made sure to put in 100% and impress my Directors. This has put me in a strong position to attain promotions when they become available. While it’s good to get along with your fellow graduates, you have to remember that they are also your competition!
A huge part in this process for me was gaining my professional qualifications. In my line of work there is a highly regarded qualification, which is notoriously difficult to attain. This was my sole focus from the day I started, with a lot of time being spent preparing throughout my first few years.
I was able to pass my exam around 4.5 years after joining, which is much quicker than average. This has been a factor in standing out from my peers. If a similar option is available to you, I would strongly recommend pursuing it as quickly as you can. It will almost always pay off in the long run. In addition, you’re probably in the best position you will ever be in to achieve this. More commitments and responsibilities are likely to come in later life!!
Good Luck!
If you follow these simple steps, you will be in a really strong position to tackle whatever life may throw at you in the future. There are a lot of years ahead of you. It’s a real strength to get into a strong financial position early on. It will allow you to take any opportunities that might come your way, without simply concentrating on increasing salary.
Whatever you do with your finances, make sure you enjoy your years as a graduate. It can be the best time of your life, with few responsibilities and your own money to enjoy.
I really hope some of this advice helps. Even if it only reaches 1 person it will have been worthwhile!
Let me know about your experiences as a graduate in the comments below. Do you have any additional tips? Did any of these ideas help you?!