For most people, graduation (whether it’s high school or college) comes with a bit of cash on the side. If you are nearing graduation, over the course of the last month you’ve probably been collecting cards in the mail from distant family members, extra money from grandparents and even cash and gift cards from close family friends.
So, what should you do with all that money?
As tempting as it might be to splurge on a new wardrobe or buy a new gadget, there are much smarter things you can do with it.
Here are five smart ways to use your graduation cash.
1. Open a savings account
If you don’t have a bank account of your own yet, now is the time, and, along with opening a checking account, it’s imperative that you also open a savings account. If you’re looking for a reliable, online bank, check out Chime. A Chime account comes with a Visa Debit card, no overdraft or monthly fees, and a spending account and savings account. Adulting here you come.
2. Start budgeting for college expenses
If you’re heading to college, off to a trade school, or just plan to move out and work on your own, set aside money for some of your inevitable upcoming expenses now. Things like books, moving expenses, and groceries will suddenly hit you before you know it, and you’ll need extra cash, so don’t spend a dime of your graduation money before you factor that all in. Beyond stocking away your graduation cash, consider finding other ways to save, including using the app Digit, which analyzes your spending, and stocks away money for you automatically.
3. Become a mini Warren Buffet
There is a little something called compound interest which works in the favor of people who start investing early (as in, the earlier the better). So, start investing now to build wealth. You can start with as little as $5 and learn as you go with the help of Stash. Stash allows people to buy fractional shares of big-name companies from Tesla to Amazon and even supplies you with a Stash Coach to help guide you as you invest.
4. Plan for retirement (yes, really)
I know, the last thing you’re thinking about right now is investing in your retirement. But, if you are smart and start making small, regular investments in your 20s, your savings will grow exponentially over the next 30 plus years, and you’ll get huge tax benefits along the way. In other words, your older self will eventually give your younger self a giant hug for getting a head start.
Get started by opening a Roth IRA and using some of your graduation money for your first contribution. When you eventually get a job that comes with a 401 (k) utilize a service like Blooom which can help you manage your account, and reduce hidden fees.
5. Insure your belongings
You’re moving out and most likely taking most, if not all, of your precious valuables with you. And, over the next few months and years, you will probably acquire even more. Protect your valuables and make sure you are covered by renters insurance. Yes, even if you’re renting an apartment, dorm, condo or townhome, you want to have coverage in case of accidents or break-ins.
For killer prices and quick approval, check out renters insurance through Lemonade. It takes 90 seconds to fill out an application on the app, and only three minutes to file a claim to get paid.
Illustration: Laura Caseley For The Money Manual