Where To Put Your Money After Graduating College

Select’s editorial team works independently to review financial products and write articles we think our…

Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

With graduation season right around the corner, the class of 2021 is gearing up for what their lives will look like post-college.

As they prepare to enter the workforce, this period is a significant time marking the start of their careers. For new grads, it’s also an opportune moment to make sure they start off on the right financial foot. The money moves you make in your younger years can have a huge impact on what your personal finances look like for years to come.

For grads-to-be, here are two things you should do with your money to help you build a strong financial foundation.

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You can also build credit by paying off your student loans

Student loans are a type of installment credit (similar to car loans and mortgages), which means they show up on your credit report. The good news is that paying your bill on time each month will help your credit since your payment history is the most important factor in determining your score.

Graduates with student loans typically have a six-month grace period before they have to start repayment. After you begin paying your student loans, it may take a few months for them to appear on your credit report. You can pull your credit report for free from AnnualCreditReport.com to see your student loan balance and monthly payments so you know where you stand.

Save your money in a retirement account

Yes, it’s never too early to start saving for your nonworking years.

For recent college grads who score a job that offers a 401(k) plan with matching contributions, make sure you prioritize putting your money toward it, says Brian Walsh Jr., Pennsylvania-based senior wealth advisor at Walsh & Nicholson Financial Group. Otherwise, that’s free money you’re leaving on the table. If you can’t afford to meet the match, work your way toward it each year by upping your contribution by 1%.

Most companies offer two types of 401(k) options: pre-tax and post-tax. “For someone just graduating college, chances are you’re in a very low tax bracket and should take advantage of a post-tax or Roth 401(k),” Walsh says. “This will allow you to pay tax on contributions today at lower rates, rather than at higher rates in the future.” Contributing as much as you can to a Roth 401(k) now means paying less in taxes in retirement.

For those recent grads whose first job doesn’t offer a 401(k) plan or a post-tax option in your 401(k), Walsh recommends opening your own Roth IRA account to ensure you are putting away a portion of your paycheck for retirement and getting the same tax benefits.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.