Along with your high school graduation you’ll receive a diploma, lots of good wishes and, oftentimes, a good amount of cash gifts.
Your family and friends may gift you money to “use for college,” but what’s the best way to do that? Before your newfound wealth burns a hole in your pocket, consider these graduation money tips from financial experts so you can spend (or save) it wisely.
Open a High-Yield Savings Account
Once you’ve made a plan for your money, you need to keep it somewhere—like a bank account. “I’m a big fan of online, high-interest savings accounts,” says financial coach Ashley Feinstein Gerstley, founder of The Fiscal Femme and author of The 30-Day Money Cleanse. “There’s something magical about having something out of sight, out of mind.” If you already have a savings account, Gerstley still suggests opening a separate one just for your college gift money. An online, high-interest account will mean you’re earning more money than if you parked it in a traditional savings account, which tends to have a lower interest rate. Try not to let your graduation money get intermingled with other money you’re spending. “By putting it in its own account, you’ll know exactly where the money is that was gifted to you and what it will be used for,” says Gerstley. “If you put it with other money that you spend regularly, it’s easy to start dipping into the funds you had saved for school, and the next thing you know, it’s time to start school and all of that money is gone.”
Give the Money a Purpose
“The first thing you need to do is decide how you plan to use the graduation money you’ve been gifted,” says Gerstley. Will it be your spending money or should it pay for first semester’s books or go toward tuition? There’s no right or wrong answer here—but the money needs a purpose. It may be helpful to talk with your parents about your graduation money so you understand expectations on both sides. For example, will they be helping contribute to travel home during the semester? These questions can help you determine where your money should go.
Even if you decide to use graduation money as first semester spending money, Gerstley recommends to set yourself up with a salary—an amount you transfer from savings to your checking account each week or month. This strategy helps by giving you a set amount to spend over time and may help you avoid spending it all in the first month.
Create an Emergency Fund
Looking ahead to life after college, most financial experts suggest setting aside enough money to cover three to six months of expenses in an emergency fund. It’s practical advice once you reach that point, but there’s no reason you can’t start laying the foundation now. In college, consider starting a scaled-back emergency fund, says Lauryn Williams, founder of Worth Winning. “Set aside a little of your college money in case something were to pop up and you need to get home in a hurry, for example,” she says. “Or if you get a flat tire and you need to get back and forth to class. It’s important to have an emergency fund no matter what phase of life you’re in.”
Build (and Tweak) Your Budget
Your pre-college spending may look very different from what you have to pay for once you’re on your own, says Soraya Morris, lead trainer at MoneyGuidePro. She advises using the first month or two of school to gather data on your new college budget: How much is gas, your public transit pass, grocery shopping, and dining out? Give yourself time to see what your expenses look like so you can create a realistic college budget for your graduation money. Find a balance between the costs you need to cover and some fun expenses. And it’s important to realize that a college student’s budget may vary from week to week. Plan for the unexpected. “Don’t say you’re not going to spend any money eating out—of course you will,” says Morris. “Just be honest and put some aside for fun things you want to do.
Track Your Spending
One way to get your budget on track is getting in the habit of tracking your spending. Apps make it easy to see where your money is going, and most bank apps have tracking tools built right in too. Tracking your money can also be helpful to ensure that your money is secure and can help you prevent fraud. You’ll be able to take action fast if you ever see a charge you don’t recognize.
Being thoughtful and strategic about your graduation money is a smart move—and it doesn’t have to stop there. You can put these financial best practices to use no matter the source of your money, whether that’s holiday cash from your grandparents or paychecks from an on-campus job. Spend wisely now and you’ll set yourself up for a solid financial future.
