What do you do with the graduation money?

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When you graduate, you could end your college journey with more than a degree in hand – you could also end up with a generous cash gift.

The average person who buys graduation gifts will spend $ 107, with silver being the most popular giveaway, according to the National Retail Federation’s 2019 graduation spend. Investigation. If 5 people gave you a cash gift of this amount, you would pocket approximately $ 535.

So what should you do with your graduation money? Are you capitalizing on that trip to Europe you are dying to take or the outstanding student loan balance? Ultimately, it’s up to you.

“When you’re young, your decisions are important and should match your goals, circumstances, and values,” says Jason Kirsch, a certified financial planner in Santa Monica, California. “It will keep people from regretting things in the future.”

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Factor in your savings, debts and job prospects in your decision. Here are some recommendations to get you started.

Save first

Build a emergency fund is an important first step towards financial health. You probably won’t own a home fresh out of college, so you don’t have to worry about the cost of homeownership emergencies, but you could still face some unforeseen expenses. such as car repairs or medical bills.

Creating an emergency fund is an important first step towards financial health.

Having a $ 500 pillow is a solid foundation. In the long term, aim to save enough to cover three to six months of expenses. Your graduation gift might not be enough to get you there, but any emergency reserve deposit can help.

For non-urgent charges, create a general savings account, if you don’t already have one. Put away some of your gift to cover living expenses like gasoline or work clothes, even if you live at home with your parents without rent, says Donna Wood, a certified financial planner in Haymarket, Va. Or think big and save for goals like a new car.

Invest for your retirement

Save for retirement may not be a priority when you are young. But the earlier you contribute, the better off you will be in the future. Even a modest contribution from your graduation path will work to your advantage.

At an assumed average annual rate of return of 6%, an investment of $ 100 at age 22 will grow to $ 1,226 at age 65. It can get you into the habit of saving, and seeing your money grow might motivate you further. Consistent contributions are where compound interest really pays off. If you can collect $ 25 per month to add to that initial deposit, you’ll have $ 57,495 at age 65.

If you have a job that offers a 401 (k) and the company match, be sure to contribute enough to get the full match. Consider opening a IRA extra, or if you don’t have access to a 401 (k).

Tackling Crushing Debt

If expensive purchases of books and laptops have resulted in high interest credit card debt, make paying them off your next priority. Once it’s gone, use a budget calculator to learn how to distribute your money and avoid future debt.

If expensive purchases of books and laptops have resulted in high interest credit card debt, make paying them off your next priority.

Persistent student loan balances are often more anxious than credit card debt. But, generally, there are options available to help you manage this low interest debt as amended. repayment plans, tax deductions and a six-month grace period after graduation.

“I wouldn’t mind investing gift money for student loans up front, unless you were working with a large amount of money or it just gave you better peace of mind,” says Ben Brown, a certified financial planner in Bethesda. , Maryland. “It will go a lot further if you really focus on your most valuable asset as a young person, which is your earning potential.”

Spend it for yourself

If you don’t have a job in place, Brown suggests spending the money to boost your prospects. Use a professional CV service or career coach, or take additional courses to develop your skills.

And it’s good to have fun. A graduation gift is meant to be a reward for your achievement, after all.

And it’s good to have fun. A graduation gift is meant to be a reward for your achievement, after all. If you want to improve your financial habits while still enjoying yourself before entering the workforce, Brown recommends spending between 10% and 20% of the gift on fun purchases. If you’re comfortable with your financial situation, give yourself more leeway. Go ahead and take this trip. Update your wardrobe. Buy a new phone.

This article was written by NerdWallet and was originally published by USA today.

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