Be re-informed that your graduation money is the money you are commonly gifted by the friends and family after graduation. It serves as both a congratulatory measure and as an aid package to ease the transition into the working world.
How and What to Use your Graduation Money for
1. Kick-start your Emergency Fund
Keeping a minimum amount in the bank can help you navigate minor financial hiccups, like your car breaking down or an unexpected job loss, so you do not panic or rack up debt when things do not go as planned.
Using a credit card to cover an emergency may seem convenient, but it can be expensive in the long run if your card has a high interest rate. As such, once you have begun building an emergency fund, such as paying down your student loans.
However, do not put emergency savings completely on the back burner. Having about $1,000 tucked away is a good start, but you should aim for eventually having at least three to six months’ worth of expenses in an emergency fund.
2. Pay down some of your Student Loan Debt
One option for how to use graduation money is to apply it to your debt if you took out student loans to pay for school, this will make you to be strategic about paying down your student loan debt with cash gifts.
By pre-paying these loans through your graduation money, you could save yourself from accumulating interest on interest down the road. Otherwise, once your regular payments begin, you would be paying interest on both the principal and the interest that accrued during the grace period.
3. Get a Jump on Saving for Retirement
While it may not be on your radar with other post-school priorities, it is never too early to start planning for your golden years. As hard as it may be to contribute to retirement savings while paying off student loans or other debt, your future-self will thank you for doing so.
Starting with your employer’s retirement plan, if that is an option, or opening an individual retirement account (IRA) are smart ways to spend your graduation money. Once you have started to contribute to your retirement as a smart way to spend your graduation money, you will eventually get used to it.
4. Start your Home down Payment Fund
If you want to become a home owner someday, you might be wondering how to use graduation money to reach your goal. Using it to lay the foundation for a down payment is a step in the right direction.
If you are excited about the prospect of owning your own place, I will recommend you start budgeting for your down payment now as a way to use your graduation money. To do this, first, consider your time frame for saving your down payment.
Every personal finance expert repeatedly advises the need for a savings account. This account is not for exotic vacations or new computer purchases. Rather, it is a safety net in case of job loss, medical expenses or any other unexpected circumstance.
Experts recommend that you save up at least three months of living expenses. That is rent, bills, groceries; anything to maintain your current standard of living. If you are just graduating from high school, you may think this savings advice does not apply to you, but it does.
This is because it is good to get into a saving habit now. The more disciplined you are, the more you will save in your life time.
Investing may be a scary, but the best way to overcome your fear is to jump right in. If you have time to pore over data reports for 200-300 different stocks to make the most knowledgeable decisions in trading and selling, have at it.
However, if you do not, you may want to look into a mutual fund. Mutual funds are managed by professional investors, and they can help you spread your money over dozens of stocks. You will have to pay fees, but that type of management is worth it.
In a Nutshell
How you use or what you do with your graduation money can affect you positively or negatively in future. Making good use of your graduation money therefore is advisable so as not to have regrets in the future.
If you are not sure whether to spend or save graduation money, please know that it helps to look at the big picture. For example, your short-term needs may include an emergency fund, while buying a home or creating a comfortable retirement nest egg may be part of your long-term financial goals.