If you recently graduated from college or are about to, congratulations. You know it’s a significant rite of passage and that you’ve accomplished a major goal.
Those closest to you will typically celebrate your achievement, and some gifts may come rolling in, often in the form of cash.
As you get ready to start the next chapter of your life, you may wonder what to do with any money you receive. Should you pay down debt, invest the funds, go shopping?
The answer will depend upon your personal finances and your goals, but here are 25 ideas to inspire you.
1. Jump-Starting an Emergency Fund
Establishing an emergency fund can be a great first step toward financial stability. Having this cushion can help you to handle a financial setback, such as a costly car repair, trip to the ER, or loss of income, without having to rely on high interest credit cards.
A good target is to have enough money set aside to cover three to six months of living expenses. It’s fine to start small, however, and build this fund up over time.
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2. Paying Off Credit Card Debt
It’s not uncommon to accumulate credit card debt in college. Laptops and textbooks can be costly, and it can be hard to have time to work a significant number of hours. The sooner you pay off any balances you are carrying, however, the less you’ll pay in the long run and the easier it will be to handle new expenses, like rent and car payments.
3. Buying Interview Clothes
Whether you graduated from college early or just completed grad school, you may be job hunting. While the knowledge, skills and attitude you can bring to a company may be what’s most important, how you dress for the interview can also form a lasting impression on potential employers. Depending on your industry, that might mean a suit for men and a suit or dress for women.
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4. Reducing Your Student Loan Debt
If you took out a student loan for college or graduate school, you may want to use some of your graduation money to start paying down your loan balance. The more you can knock down your loans, the less interest you’ll owe and the less you’ll pay overall.
If you make an extra payment, however, it can be a good idea to make sure that your loan officer applies the extra amount to the balance, rather than next month’s payment.
5. Saving up for an Apartment
If you’ll be moving into your own place after graduation, you’ll likely need to come up with your first and last month’s rent, plus a security deposit, in one fell swoop. You may also want to save up for furniture and household items, like dishes, cookware and linens, to set up your new place.
6. Investing in Mutual Funds
While investing can sound intimidating, one easy way to get started is to invest in one of the different types of mutual funds. While these funds typically charge an annual fee and involve risk, they are managed by professional investors who spread your money over a mix of securities, such as stocks and bonds. You can choose a mutual fund based on its past performance, how aggressive (or stock-heavy) it is, and the type of fees they charge.
7. Opening a High-Interest Savings Account
Traditional savings accounts typically offer very low interest. If you are saving your graduation money for a short-term goal, like buying a car or building an emergency fund, you may want to put it in an account that offers higher interest than a traditional savings account, but is still safe and allows easy access to your money. Some good options include: a high-yield savings account, money market account, online savings account, or checking and savings account.
💡 Quick Tip: If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.
8. Getting a Start on Retirement Saving
It’s never too early to start saving for retirement. Thanks to compounding interest (which is when the interest you earn on your money also earns interest), the earlier you start putting money aside for retirement, the easier it will be to meet your goal. If your employer offers a matching program for your 401(k), you may want to consider taking full advantage of it and contributing at least up to their match.
Recommended: The Average 401(K) Balance by Age
9. Going on a Trip
Before you jump into the working world, you may want to take some time off and explore some new destinations. Traveling is not only fun, it can also be a way to learn more about the world, gain insights into different cultures, and potentially even make some new connections.
The experience of traveling may also energize you and help you gain clarity about what you want your future to look like.
10. Saving up for Grad School
If you’re planning to pursue a higher degree, you may want to use your graduation money to jump start your grad school fund. In general, it can be better to pay for your education out of pocket rather than taking out student loans which, thanks to interest, make the cost of higher education even higher.
11. Putting Money Into Real Estate
You may not have enough money to purchase a home yet, but you could try investing money into a REIT (real estate investment trust). Modeled after mutual funds, REITs offer a lower-cost way to invest in the real estate market and you can typically invest in a fund with as little as $1,000 and up.
These trusts are also liquid, which means you can sell at any time. Like stocks, you can buy and sell REIT shares on an exchange. As with any investment, investing in a REIT involves some risk.
12. Buying a Car
If you’ll be needing a car to get around, it can be a good idea to start saving for a downpayment or, even better, paying for the car in cash. Whether you buy a used or new vehicle, the more cash you can put down initially, the less you’ll have to finance–and the less you’ll end up paying for that car.
13. Joining AAA
Whether you already have a car or you’re planning to buy one, you may want to use a bit of your graduation money to join AAA. Having a AAA membership can provide peace of mind when you’re out on the road, and can end up paying for itself should you get a flat tire or two, or need a tow in the wee hours of the morning. AAA membership also gets you discounts on many hotels, rental cars, and other products and services.
14. Starting a Business
If you are planning to launch your own business straight out of college, you may want to funnel your graduation money right into your new venture. If you need additional cash for your start-up, you might also consider taking out a small business loan or crowdfunding your idea on a site like GoFundMe and Kickstarter.
15. Joining a Wholesale Club
As you transition from dining hall or parent-supported dining, you may want to look into joining a wholesale club like Costco, BJ’s, or Sam’s Club. These member-only stores can save you a lot of money when you buy in bulk, and could especially come in handy if you’re splitting costs with your roommates.
16. Donating to Charity
Donating some money to charity can be a solid option when you’re deciding what to do with graduation money. If you have a particular cause you’re passionate about, you can look for relevant charities on Charity Navigator.
If you give to a tax-exempt 501(c)(3) organization, you may be able to write the charity donation off on your taxes.
17. Taking Your Parents to Dinner
If your parents helped pay for your college education, you might want to show your gratitude by taking them out to dinner. It doesn’t have to be anything fancy; the idea is to let them know that you truly appreciate their love and support. This could apply to a grandparent, family member, or a friend who funded your education as well.
18. Saving for a Home
While owning a home might not be in your immediate future, you may want to use your graduation money to start saving up for a down payment.
To get a sense of how much you might need, you can start looking at real estate prices in the area where you would like to live. Ideally, you would want to put 20 percent of the purchase price down and avoid private mortgage insurance.
19. Saving for Your Wedding
Weddings can cost on average more than $30,000 for the ceremony and reception. Of course, there are ways to have a cheaper wedding, such as keeping it small or having it in your backyard, but wedding costs can still add up quickly. If you’re engaged or planning to be soon, you might want to use some of your graduation money to start a wedding fund.
20. Paying for Additional Classes or Certifications
Even though you graduated with a degree, you may find that you need some additional training to stand out in your field.
To be more competitive when it comes to the job market, you might want to use your graduation money to pay for additional classes or certifications. This could possibly lead to an increase in your salary as well.
21. Paying for Personal Care
When you go in for job interviews, you’ll want to look your best. Along with buying professional clothes for your interviews, you may also want to invest in other aspects of your personal appearance, such as getting your hair cut or styled, getting your nails done, or having your teeth whitened. Putting your best foot forward can help you feel more confident.
22. Moving to an Area with a Stronger Job Market
If your home town doesn’t have the best job market for your field, you may want to consider moving somewhere that offers more opportunities. You could put your graduation money towards moving expenses, such as renting a truck or professional movers.
23. Hiring a Career Coach
If you’re having trouble finding the job you want, you might consider using your graduation money to hire a professional career coach. These pros can help you revise your resume, improve your LinkedIn profile, build your network, and help you plan out your career. Typically, the best career coaches will have extensive experience in human resources and/or recruiting.
24. Getting Health Insurance
If you graduated from college later than your peers or you’re finishing up grad school, then you may no longer be on your parents’ health Insurance. You may want to start by looking for a health insurance policy on the government marketplace. As you compare policies, it can be a good idea to keep your medical needs, such as prescriptions and specialty doctors’ visits, in mind.
25. Paying Back Anyone You Owe
If you borrowed any money from family or friends during college, you may want to use graduation money to settle up. This shows that you are responsible and true to your word. If you end up in a bind again in the future and need to borrow, your family and friends will know that you can be trusted to pay them back.
The Takeaway
If you’re not sure whether to spend or save your graduation money, it can be helpful to look at both your short-term needs, such as paying off credit cards and buying a car. as well as your long-term goals, like creating a comfortable retirement nest egg.
The answer to how to use graduation money is different for everyone, but it can be a good idea to weigh all of the options before you make any major spending decisions.
Whether you’re saving for something specific or storing cash until you’re ready to invest, finding a bank account with low or no fees and a good interest rate can be a smart move.
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