What should you do with your graduation money?

You should use your graduation money to build an emergency fund, start paying back your student loans, or prepare yourself for your career by buying work clothes or paying for higher education. You could also use the money to make more money, by investing it in the stock market or starting a business.

Cash is the most popular gift given to graduates, with more than half of consumers planning to give cash as a graduation present, according to a survey by the National Retail Federation. The typical cash gift for a graduate ranges from $10 to $500, according to Western Union. While it may be tempting, you shouldn’t spend all your graduation money on an impulse purchase or one big splurge, like a party or an expensive vacation. Instead, you should use the money in one of the ways listed below.

Best Ways to Use Your Graduation Money

Build an Emergency Fund

An emergency fund is money you use to pay for unexpected expenses, such as an urgent-care bill or expenses after being laid off. Having an emergency fund helps prevent you from needing to rely on debt to cover these costs. You should have three to six months’ worth of your living expenses in an emergency fund, and you can use your graduation money to get started or top off your savings so far. 

Pay Back Student Loans

The average person with student loans owes more than $41,000, according to WalletHub’s analysis. Using your graduation money to pay off some of your student loans can reduce the amount of interest you have to pay overall. Depending on the type of student loan, you may start accruing interest the moment your loan is disbursed or after you graduate.

Pay for Higher Education

If you want to further your education, using your graduation money to pay for college if you just graduated from high school or graduate school if you got your bachelor’s degree can be a great investment. It can also help you reduce the amount of money you need to borrow to pay for school.

Besides tuition, you can use the money for expenses such as housing, books, and food. Alternatively, if you are going to a school that is far away from home, you could use the graduation money to pay for a plane ticket back home during semester break to visit friends and family.

Get Certificates Needed in Your Field

Depending on the career you choose, you may need specific certifications before you can land a job. If so, you can use your graduation money to help you get the certificates you need. The cost to get certified can range from $50 a month to $6,000 in total, according to Coursera.  

Start Saving for Retirement

Almost 50% of Americans are not confident they will have enough money to retire, according to a WalletHub survey. The sooner you can start saving for retirement, the sooner you can take advantage of compounding. Compounding lets you earn dividends/interest not only on your initial investment but also on the dividends/interest you reinvest, making it more likely that you will reach your retirement goals.

Invest in the Stock Market

Investing in the stock market can increase the value of your graduation money a lot more than just keeping it in a traditional savings account. The average rate of return for investments in the stock market is about 10%, while savings accounts have averaged 0.29%. It is important to note that there is some risk of losing money while investing, but diversifying your investments can help lower the risk.

Start a Business

If you plan to start your own business after graduation, you can use your graduation money as seed money. It may not be enough to get your business up and running by itself, but it can help you get some of the supplies that you need to get started.

Pay Down Debt

You can use your graduation money to pay down any debt you have from credit cards or loans. This way, you can pay off your debt faster and reduce the amount of interest you pay overall. If you have multiple debts, use the money to pay off the debt with the highest interest rate first since it’s the one that will cost you the most in the long run. In addition, you should still make the minimum payments on all your other debts.

Buy Business Clothes

If you are entering the workforce after graduation, you should try to dress to impress so you can land a job. You can use your graduation money to buy clothes that you can wear for interviews and then to work once you get a job. However, you should be careful not to overdo it and spend more on clothes than you actually need.

Buy a Car

You will need reliable transportation to get where you need to go. If you don’t already have a car, you can use your graduation money to help pay for one. It is a good idea to list all potential car expenses, including gas and car insurance, in a car budget so you know how much you can afford.

Save Up for an Apartment

You may be thinking about moving out on your own after graduation. To do that, you will need some money to afford things like the rent on an apartment, the security deposit, and moving costs. Your graduation money can help you afford the costs of moving out, though you’ll also need a steady income to increase your odds of getting approved for an apartment and to be able to consistently afford your rent.

To learn more, check out WalletHub’s guides on the best places to put cash and budgeting tips for young adults.