Cap, Gown, Cash: Get Smart with Your Graduation Gifts

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Personal-finance blogger and regular KWHS contributor Zina Kumok, 26 and founder of Debt Free After Three, offers some tips for where to put your graduation spoils.

Happy graduation! You’re celebrating with your family and before you know it, everyone’s handing you money-filled envelopes. Cash is a popular graduation gift, and it can quickly add up. What will you do with your newfound fortune?

I used money from my high school graduation to help pay for a study-abroad trip to London during my junior year of college. My gifts totaled around $1,000, and since I was working two jobs the summer after high school graduation, I was able to put that entire gift amount into my savings account. Since I already knew I wanted to take the trip, I wasn’t tempted to spend it or use it for something else.

I received about $500 from my college graduation party and used it to buy myself a DSLR camera that I really wanted. Each time, I already knew what I would use the money for, so I wasn’t tempted to go shopping and blow it all at Sephora.

Here are some tips for your graduation cash, so it doesn’t disappear too quickly:

Find a goal. Before your parents even order your graduation cake, think about what you’d want to do with your graduation money. You can use it for a trip, a new car or the start of an emergency fund. An emergency fund is money that you save for a rainy day. Sometimes it can be hard to set aside money that you want to spend. But you never know what might happen. Put anywhere from $100 to $1,000 aside, and forget about it.

Consider using your graduation money for college expenses, like textbooks, your first month’s rent, or a parking pass. Having a separate fund for those fees will make your first few weeks of school much less stressful.

When I was a senior in high school and preparing for my life on campus, I knew that my college program offered a study-abroad trip to London. It was one of the main reasons that I had chosen to attend my school. So I knew that even though it was a few years off, it was easy for me to set my graduation money aside, rather than spend it.

You need a goal because otherwise you will see your graduation windfall as fun money. Whether you label it as your emergency fund or textbook fund, make sure to give it a purpose. Money without a goal tends to have a way of walking into shopping malls and logging onto Amazon.com.

Get advice. Ask other people you know in college what they would spend the money on. They might have ideas that you’re not considering – like a spring break trip with friends, a new laptop when the one you have dies in the middle of finals, or a new set of tires for your car.

The older you get, the more reasons you have to spend money. Many of those are things you need. When you’re not paying for your own expenses, it can be easy to take that money for granted. You should enjoy your gifts, but also realize that this is a new point in your life – one that comes with more financial responsibility.

If you want to be treated as an adult, you have to start thinking about the future and finding ways to become more independent. Your parents can’t be your emergency fund forever, which is why it may be time to start your own. If you want freedom, use the money to help pay for an apartment instead of living in the dorms. If you want adventure, put the money toward a crazy road trip.

Put it somewhere safe. One of the hardest parts of having money is how easy it is to spend. If you don’t have a savings account, open one and deposit all those graduation checks. You can also give the money to your parents and ask them to hold onto it until you are able to establish your own bank-based emergency fund.

Do your research and see if you can find a savings account that will allow you to earn more money in interest. Contact your local credit unions because sometimes their rates can be better than the big banks. You can also try to open up a CD or certificate of deposit, a special type of savings vehicle offered by banks and credit unions that typically requires you to keep your hands off the money for a period of time and earns a higher return than a traditional savings account. This might be a perfect solution if you are saving for a longer-term goal. Earning a higher interest rate can make a huge difference if you plan to keep your money in the same place for a few years. Also, money that’s not in reach is much harder to spend.

Another way the you can make sure you don’t spend your money frivolously is to donate it to a cause that you believe in. Since high school graduation, I’ve donated money to my alma mater. I also try to give to National Public Radio and other fundraisers that my friends hold throughout the year.

Giving away a portion or all of your graduation money may not be your first impulse, but I’ve found that the more you give, the more you appreciate the money you have. Giving money to charity can make people feel happier, and doing so early in your life can establish good habits that will help you prepare for a more successful financial future.

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What’s your plan for your graduation cash?

Why is goal-setting so important when planning your finances? How might your graduation money fit into your short-term and long-term goals?

How do you feel about donating money to a nonprofit? What are the benefits? What are the dangers? Where might you put your contributions that have meaning to your own life?

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