Financial Planning for Recent College Graduates

According to a recent study conducted by Korn Ferry, the average starting salary for a college graduate in the U.S is projected to be slightly under $51,000 in 2019.

The average student loan debt upon graduation is roughly $37,000.

Without any financial experience or knowledge, this can be a lot to overcome. I’ve built a hypothetical financial plan for college graduates around these averages. The plan will address paying down student loan debt, saving, and investing. Planning for financial goals is not singular, you can, and should plan for multiple goals at once.

This plan can be used as an educational piece or starting point for anyone, not just recent college graduates. The information and process can be applied regardless of age, income, assets, or debt.

Identify Goals

Throughout the rest of the plan, I’ll refer to our average college graduate as Joe.

The first step in building any financial plan is to identify goals. These goals should be realistic and attainable, however not always easy. Paying off $37,000 in debt directly out of college isn’t an easy goal to achieve.

I’ve listed four common goals that we’ll use for this particular situation below.

  1. Pay off student debt 
  2. Save for retirement 
  3. Build an emergency fund 
  4. Annual travel budget

As I mentioned before, these goals shouldn’t be funded singularly. Joe shouldn’t ignore building an emergency fund while he pays down his student debt. Just as he shouldn’t ignore saving for retirement while building an emergency fund.


We’ll assume the only asset Joe has on his balance sheet is a car. We’ll also assume his checking/savings accounts are starting at zero.

The only debt Joe carries is his student loans.

Note: This section of the plan is basically nonexistent for Joe. Over time, it will become a more important piece as he starts a family, buys a home, opens a brokerage account, etc. 

Cash Flow

Understanding the cash flow, and the budget portion of a financial plan is very important. Over time the focus will shift to building up assets and managing liabilities such as a mortgage. However, at the beginning, it all starts with cash flow and where your money is going.

Fixed Living Expenses

To succeed at paying off his student loan debt, Joe needs to keep his fixed living expenses less than 25% of gross income. This would mean finding a rental property with a monthly payment around $900. When you add utilities and other fixed living expenses, it should add up to roughly $1041 per month, or 25% of his monthly gross income ($4,166.67).

What I’ve found to be extremely helpful in maintaining discipline with financial plans, is to automate as much as possible. Each one of Joe’s goals can be automated in regards to payments and contributions.

Goal #1 Paying off Student Debt

I used FinAid’s student loan calculator to get the following information for a loan balance of $37,000 upon graduation.

Loan Balance: $37,000.00
Adjusted Loan Balance: $37,373.74
Loan Interest Rate: 6.80%
Loan Fees: 1.00%
Loan Term: 10 years
Minimum Payment: $50.00
Enrollment Status: Graduating Soon
Degree Program: Bachelor’s Degree
Total Years in College: 4 years
Average Debt per Year: $9,250.00
Monthly Loan Payment: $430.10
Number of Payments: 120
Cumulative Payments: $51,611.69
Total Interest Paid: $14,611.69

Using the standard repayment plan with a 10-year term, Joe will be debt-free by age 32 assuming he maintains payments at $430.10 each month.

There isn’t an early payment penalty associated with student loans, therefore it’s highly recommended to make additional payments once Joe satisfies his other goals. Making payments above the monthly amount will save Joe money in interest over time as well.

TIP: Using your tax return or bonus at the end of the year is a great way to use a cash windfall to speed up payments. Student loans are a great investment in yourself and your future, however, it’s not a healthy debt to carry for the long term.

Goal #2  Save for Retirement

In this case, Joe should enroll in his employer’s 401(k) plan. It’s the easiest and most beneficial way to get started investing, and saving for retirement.

A benchmark savings rate for long-term goals such as retirement is 15-20% of gross income. Over time you’d like to inch your way closer to the higher end but in this case, we’ll just start at 20% (including emergency fund savings). Joe should take advantage of the ROTH 401(k) option and contribute $8,200 annually.

Contributions to a 401(k) are already automated by your employer. This makes it extremely easy to manage once it’s set up.

TIP: Every year you wait to start investing the less time to utilize the power of compound interest. The greatest advantage young people have to achieve their retirement goal is TIME. 

Goal #3 Build an Emergency Fund

3-6 months of living expenses is a good target for an emergency fund. Setting up an automatic transfer on payday from your checking to a savings account is an easy way to hold yourself accountable.

$1,041 * 3 months = $3,123 necessary for 3 months of fixed living expenses.

If Joe starts by setting aside a total of $150 a month into savings he’ll have three months’ worth of fixed living expenses in an emergency fund after 21 months.

$150 * 21 months = $3,150 saved after 21 months.

Goal #4 Travel Budget

Whatever your leisure goals may be, don’t feel bad for spending money on things you enjoy. If it’s built into your plan you should feel good about it, you’ve earned it.

For this plan, Joe wishes to have a budget of $2,000 each year specifically for travel-related activities. Again, designating a specific savings account is a good way to separate the money and will help from deviating from the desired amount.

With the cash flow determined for each goal, let’s look at how everything works together.

Gross Income $50,000

– Fixed Living Expenses $12,492

– Student Loan Payment $5,161.20

– Roth 401(k) contributions $8,200

– Emergency Fund Contribution $1,800

– Travel Budget $2000

– Taxes (federal only) $8,238.75

= $12,108.05 available for variable expenses. 

Or $1009 a month.

If Joe needed more cash available for variable expenses each month he can consider a few options.

  1. Make contributions to a traditional 401(k) rather than Roth. This will reduce taxes by $2,050. However, he forgoes the benefits he’d receive in the future from the Roth.
  2. Reduce travel budget. If Joe decides he doesn’t need to fund travel immediately he can add another $167 to his take-home budget each month.

Other Considerations:

One debatable suggestion in this plan is how much money is going towards retirement savings compared to paying down the student loan. If Joe determined he’d like to put more towards paying down his student loan we wouldn’t suggest otherwise, especially with the interest rate he’s paying.

Another tip would be to start to add any raises, bonuses, or additional income each year to student loan payments and continue to fund the 401(k).

Either way, as long as the money is going towards long-term investments, or paying down the debt, Joe is making a good financial decision.

Lastly, this plan doesn’t specifically take into account healthcare-related expenses, instead, it groups them into the monthly variable expenses. Realistically, people don’t like to spend the time to get granular with their budgets, therefore it’s easier to figure out what’s available for variable expenses each month as a whole. If you feel the need to get into more detail I’d suggest filling out a full expense worksheet.


This completes our financial planning for a recent college graduate example. By taking the time to develop a plan that’s automated, recurring, and disciplined, you can set yourself up for financial success. The biggest step is taking the time to put a plan in place. From there automation can do the rest. Once established, sit back and watch debt disappear, as wealth starts to grow.

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Levi Sanchez, CFP®, CPWA®, CEPA®, BFA™
Levi Sanchez, CFP®, CPWA®, CEPA®, BFA™
Levi Sanchez is a CERTIFIED FINANCIAL PLANNER™, CERTIFIED PRIVATE WEALTH ADVISOR®, CERTIFIED EXIT PLANNING ADVISOR®, BEHAVIORAL FINANCIAL ADVISOR™ designee and Founder of Millennial Wealth, a fee-only financial planning firm for young professionals and tech industry employees. Levi’s been quoted in the New York Times, Business Insider, Forbes, and is a frequent contributor to Investopedia. He is an avid sports fan, personal finance and investing geek, and enjoys a great TV show or movie. His mission is to help educate his generation about better money habits and provide financial planning services to those who want to start planning for their future today!

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