Graduation is on the horizon for many high school and college students. That means there are many things to look forward to - one being graduation money! Having been a broke college student not too long ago, I know of the desire to blow it all on a summer vacation, a new car, or partying. Graduation marks many peoples’ entrance into the “real world,” and that can be a scary thing. We have to start thinking about our mounting debt, finding a job, and becoming financially independent. Although the smart things to do with graduation money are not always the most attractive or fun options, they can help ease your mind and provide some comfort. Below you will find some suggestions as to what to do with your graduation money.
Graduating from high school is often the first time we receive a large sum of money, and it can be very tempting to blow it all on fun things. However, before you do anything else, this is a great time to open your first “adult” bank accounts. Personally, this was when I opened my first bank accounts; I opened both a checking and a savings account after my high school graduation party. Banks often have some good account options for people newly entering adulthood. Parents, this is a good opportunity to teach your new graduate about earning interest and the importance of beginning to save at a young age.
Graduating from college means you are entering the “real world” and you need to be more aware of the uncertainty that could lie in your future. Having an emergency fund is very important in order to be financially secure. No one can predict the future, so having money set aside just in case is definitely a good thing. Losing a job, medical issues, or car troubles are all examples of things that could potentially happen that we should be financially prepared for. These are all stressful situations, so having an emergency fund set aside to provide a financial cushion is both comforting and important for the future.
Buy Something Useful
Graduating from high school is a big accomplishment, but it is not the end of everyone’s educational career. In the fall you may be going off to college, so why not use some of the money to purchase something useful for this next chapter in your life? Spending money on something you will need in college can be important as well as fun - like a laptop or tablet. Some less fun (yet important) suggestions are textbooks or a new suit for job interviews.
Pay off Debt
I think we can all agree - receiving money as a college graduation gift is one of the most needed gifts anyone could give you. One of the best things to do with the money is pay off your most expensive debt. When I say expensive, I mean the debt that has the highest interest rate - not necessarily the highest balance. Typically the most expensive debt college students have is credit card debt followed by private student loans. Paying off a large sum of debt can be very relieving which can energize you to want to pay off the rest sooner!
Open a Roth IRA
This is another option that really promotes the importance of saving money. A Roth IRA is a good option for younger individuals to start saving for retirement. Now I know most of you are thinking, “I JUST graduated…why do I need to think about retirement?” Well, the best answer I can give you is two words: compound interest. Investing $100 at age 18 at an expected return of 8%, your $100 investment will be worth over $3,300 when you’re 65 years old. See why it’s so beneficial to start saving early for retirement? Opening a Roth IRA is a good idea for high school graduates or current college students. The contribution limit makes it a good investment for younger people.
Yes, it is recommended to get in the habit of saving early and saving often, but that doesn’t mean that you shouldn’t be allowed to spend ANY money on yourself right now. So take a percentage of the money you receive from graduation (maybe 10-20%) and use it on whatever you want! Go out with your friends who will soon be moving on in different directions, or go on a shopping spree. Using some of the money for something fun will hopefully show that you can have a good balance of having fun and being responsible. Saving money for the future does not mean you have to sacrifice enjoying life today; just remember - you don’t need to enjoy life too much!
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