Wisdom for the Windfall: Financial Advice for Graduates

Before spending graduation money, Texas Tech experts say new responsibilities are often overlooked.

Raining Money

Experts warn against hasty spending of your windfall.

Graduation means quite the payday for many college students, but those who aren't careful may find themselves blowing through that congratulatory money with little or nothing to show for it.

Peer financial coaches from Texas Tech University's unique Red to Black program offered advice on how to spend graduation money so it works for the student. Saving or investing means graduates can continue to enjoy those gifts long after moving into the working world.

Create an emergency fund

Nadia Marquez, a doctoral student in the Personal Financial Planning program, suggests putting some of the money into an emergency fund, which she said should be three to six months of living expenses that stays there until it's needed for a real emergency. Although graduates likely won't have enough for the entire fund right away, they can use graduation money as seed money and contribute monthly once they're employed.

That fund can also be used to pay for moving expenses to a new job.

“That way you don't have to dip into savings or borrow,” she said.

Piggy Bank

Prepare for your first job.

Think About Retirement

Graduates also could put the money into a retirement fund. Doctoral student Tao Guo suggests opening a Roth IRA. Roth IRAs differ from traditional IRAs in that payments to a Roth account are post-tax earnings, meaning the investor won't pay taxes when he or she withdraws the money at retirement. A traditional IRA is pretax earnings, but the investor will pay taxes on the money upon retirement.

“The year when you graduate and start your first job can be a great opportunity to take advantage of Roth IRA account,” Guo said. “Contribution to the Roth IRA account is not tax deductible, but since you have really low income as a student, you barely have to pay any tax on it. The best part is your earning or investment return in the account is tax exempted when you withdraw the money.”

Prepare for your first job

For those who have an itch to spend their money, Marquez suggests those who still are looking for jobs invest in proper interview attire or appropriate workplace attire for those who have jobs lined up.

Guo also recommends looking ahead to the expenses associated with moving and taking on a new job, which will be the first full-time or professional job for many.

“Starting your first full-time job in a new city is very exciting, but there are quite a few places you need to prepay some expenses before getting your first paycheck,” Guo said. “Your landlord probably requires some deposit before your move in. You probably need to pay some installation fee to get your cable, or you need some new furniture and work clothes.”

Piggy Bank

Save for retirement and emergencies.

Save it

Money can go into a savings account or, for a slightly higher rate of return, open a certificate of deposit (CD). Earmark that account for a big purchase, like a down payment on a car or house or graduate school.

“It's hard to resist the temptation of spending,” Guo said. “There is always something we want to buy, some party we want to go to. As long as we see a balance in our checking account, we tend to spend it. Saving in a CD or less liquid account creates a commitment device for you. Our rational side of the brain finds a way to constrain the emotional side of the brain.”

School of Personal Financial Planning

Division of Personal Financial Planning

The School of Personal Financial Planning in the College of Human Sciences educates students on the need to focus financial knowledge on families and the achievement of their goals.

Undergraduate and graduate degree programs in personal financial planning are registered by the CFP Board. Students graduating from a CFP Board-Registered Program are eligible to sit for the CFP® Certification Examination.

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Financial Planning Academy

Sponsored by Charles Schwab Foundation, the first-of-its-kind program features curriculum from college students, professors and independent financial advisers.



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