I Received Money for Graduation – What Should I Do Now?

Graduating from high school or college is a significant accomplishment, and it's not uncommon for graduates to receive monetary gifts from family and friends as a reward for their hard work. While it can be tempting to spend this money on something fun or frivolous, graduates who are looking to establish a strong financial foundation would do well to use their monetary gifts wisely. Here are some of the best ways for graduates to use the money they received.

1. Start an emergency fund

One of the best things a graduate can do with a monetary gift is to start an emergency fund. An emergency fund is a savings account that is specifically set aside to cover unexpected expenses, such as car repairs or medical bills. A good rule of thumb is to have three to six months' worth of living expenses saved in an emergency fund.

2. Pay down fees or student loan debt

Many college graduates have student loan debt and using a monetary gift to pay down this debt can be a smart financial move. For high school graduates applying the gifts toward college fees helps lessen the need to take out student loans. Even small payments can make a big difference over time and reducing your debt load can free up more of your income for other expenses.

3. Invest in a retirement account

While retirement may seem far off, it's never too early to start saving for it. A monetary gift can be used to open and fund a retirement account, such as an IRA or a 401(k). By starting to save for retirement now, graduates can take advantage of compound interest and potentially grow their investments over time.

4. Invest in a taxable brokerage account

For graduates who have already established an emergency fund and are making progress on paying off debt, investing in a taxable brokerage account can be a smart way to grow their wealth. Investing in a diversified portfolio of stocks and bonds can help graduates build wealth over time and provide a source of income in the future.

5. Save for a specific goal

Graduates can use a monetary gift to save for a specific goal, such as a down payment on a house or a big trip. By setting aside the money and keeping it separate from their regular savings, graduates can work towards their goals without dipping into their other savings or investments.

Although difficult, graduates who receive monetary gifts should resist the temptation to spend the money on something fun or frivolous and instead use it to establish a strong financial foundation. By starting an emergency fund, paying down debt, investing for retirement, investing in a taxable brokerage account, or saving for a specific goal, graduates can set themselves up for long-term financial success.