The Perfect Graduation Gift: Setting Up Yourself or a Loved One for Financial Success

As graduation caps fly and celebrations begin, one question quietly lingers for many new grads: ‘What now?’ With student loans, first jobs, and newfound independence, financial decisions can feel daunting. But the right guidance now can set the stage for lifelong security.
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Whether you work with a financial professional or seek guidance from someone you trust, having a plan for financial success at a young age is crucial. If you have a loved one graduating this season, consider giving the gift of financial confidence by having a conversation about money management and an introduction to a trusted financial advisor, which could be more valuable than anything wrapped in a box. Helping a new graduate lay the groundwork for smart financial habits can set them up for security and success for years to come.

Below are a few tips to help you or a new graduate get started:

Create a Safety Net

• Build an emergency fund appropriate for your situation

Popular strategies include having funds to cover all of your deductibles and/or saving 3-6 months of living expenses in an emergency fund. This helps you avoid being in a position where an emergency causes financial stress on top of the stress from the emergency. If you received cash gifts from a graduation party, those funds can be used as a head start to build your emergency fund.

Start Saving Immediately

• Does your employer offer a retirement plan?

Many employers offer to match a portion of your retirement plan contributions. Failing to contribute enough to receive the full match is essentially leaving money on the table. Make sure you are contributing at least enough to the maximum employer match, as this can significantly boost your retirement savings over time.

• Automate Your Savings​

Setting up automatic transfers into your savings or investment accounts can help you stay consistent and build wealth over time. Thanks to the power of compounding interest, even small, regular contributions can grow significantly.  Saving $2,500 a year from 18 to 21 so that you have $10,000 in a Roth IRA at age 22 would put you on course for the account to be at over $319,000 at age 67 (with an 8% annual return). The balance would grow to over $1,285,000 if you continued to fund $2,500 annually.
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• Do you have unused funds in a 529 account?
  

Recent legislation now allows for unused 529 funds to be rolled over into a Roth IRA. If you meet certain requirements, you can move up to $35,000 to a Roth IRA.

Build Credit Before You Need It

• Use a credit card responsibly by never paying interest

Having a strong credit score will help if and when you need to get a car loan or make your first home purchase. In addition, some employers will use a credit score check to evaluate applicants.
Most people use a monthly subscription, so a great way to build credit is to set a card to automatic payments and only use the card for that single subscription. Since payment history, amounts owed, and length of credit history make up a large part of a credit score, starting this credit-building strategy as soon as possible is a no-brainer.
 
Be prepared for the unexpected

• Consider disability and life insurance while you’re young and healthy

Many individuals start their careers with very few obligations and don’t think much of protecting their biggest assets, their lifelong earning potential! Disability insurance is a type of coverage that provides income replacement if you are unable to work due to illness, injury, or certain medical conditions like pregnancy or surgery. 

Life insurance provides a monetary benefit to your loved ones in the event you pass away prematurely. Both disability and life insurance are available through employers, professional organizations, or as individual policies, and it’s increasingly recognized as an essential part of financial planning to protect your earning power.

Assess the Plan on a Regular Basis

• Regularly evaluating your plan will help eliminate missed opportunities.

Did your employer retirement plan have an eligibility period and can you now join? Did you get a raise, and can you now contribute more? Understanding plan details and vesting schedules can help maximize your benefits. Increasing contributions each time you make more money will help build your nest egg and keep lifestyle inflation under control. Reviewing your plan regularly ensures you are aware of any changes that could affect your retirement strategy.

Graduation is a time of new beginnings and exciting opportunities. By building an emergency fund, securing disability insurance, and starting to save and invest immediately, you are setting yourself up for long-term financial success. These steps may seem simple, but they provide a strong foundation for your financial future.
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Most investors wish they had started sooner. Do not let the excitement of graduation stop you from starting your financial journey with intention.
If you aren’t sure where to start, your StraightLine team is here to help! We can work with you to create a personalized plan. The best graduation gift you can give yourself or a loved one is the confidence and security that comes with a smart financial plan. Share this blog with a graduate you know or Contact Us to schedule a free consultation.

​Author

Zach Rivard, MS-PFP, CFP®, AIF®
StraightLine Financial Advisor

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