Life After Graduation: How to Manage a Signing Bonus

If there’s anything better than landing a job right after graduation, it’s finding out that it pays a signing bonus. These days, employers are increasingly turning to signing bonuses to attract top-performing college graduates. According to the National Association of Colleges and Employers, 56.8% of employers plan to offer signing bonuses to 2018 graduates—the highest percentage in the last five years.1

If you’re a new grad fortunate enough to be receiving a signing bonus, think carefully about how you might make the most of it.

First things first: Try not to view it as “free” money. After years of pinching pennies as a college student, you might be tempted to spend your entire bonus on something fun but impractical, like an expensive vacation. However, if you can resist the urge to spend the whole sum, you can begin to lay the groundwork for a healthy financial future.

Here are five ways to put your signing bonus to good use:

1. Take care of immediate expenses. It’s not uncommon to relocate to a new city for your first job. If the company doesn’t pay for your relocation, consider setting aside part of your bonus to cover expenses such as moving fees, rental deposits and necessary household items. (And make sure to hang on to all of your receipts; you might be able to deduct your moving expenses on your taxes.)

2. Pay down debt. If you accumulated some credit card debt in school, you’re not alone. About 35% of college students who hold credit cards have revolving balances that average between $935 and $1,635.2 Start by paying down that high-interest-rate debt first, particularly if the rate is variable—when interest rates rise, your variable-rate loan payments rise as well, and that’s a headache you don’t need. Then move on to lower-cost debt like personal and student loans.

3. Save for emergencies. Even the best-laid plans can get derailed by surprise expenses or setbacks. Cars break down, computers get stolen, companies downsize. Aim to keep three to six months’ worth of living expenses in an easily accessible bank account to cover such emergencies. If you’d like to earn more on your rainy-day money than what a savings account typically yields, consider keeping it in a fund that includes relatively liquid investments that may earn a slightly better return, such as certificates of deposit or short-term U.S. Treasury securities.

4. Start investing. As a young investor, time is on your side. The sooner you put your money to work, the longer it has to benefit from the effects of compounding. For example, if you were to invest $1,000 at age 21 and keep it invested until age 65, your money would grow to almost $13,000, assuming a hypothetical 6% annualized return. Conversely, if you were to wait to invest until age 30, the initial investment would grow to roughly $7,700—more than $5,000 less because of a shorter time for compounding.3

An automated investment advisory service (or robo-advisor)—like Schwab Intelligent Portfolios®—is one easy way to get started. You just complete a short questionnaire about your goals, risk tolerance and timeline and then review your customized portfolio recommendation.

5. Celebrate yourself. Spending your entire bonus on fancy gadgets or luxury vacations isn’t a great idea, but that doesn’t mean you shouldn’t spend a little bit celebrating your new job and the start of your life after college. Don’t feel guilty about spending some of your bonus money on yourself—because you earned it.

These tips don’t just apply to a signing bonus, but also to graduation money or any unexpected gifts or income. If you establish good habits now, you’ll have a lifetime to enjoy the benefits.

1National Association of Colleges and Employers, “Percentage of Employers Offering Signing Bonuses Climbing,” January 8, 2018.

2Sallie Mae, “Majoring in Money: How American College Students Manage Their Finances,” 2016.

3 Investor.gov Compound Interest Calculator. Assumes an annual return of 6%, which is used for illustrative purposes only and does not represent an actual product or return available. Investing involves risk to principal in that you may receive less than the amount originally invested. Learn more with Schwab Intelligent Portfolios’ Long-Term Return Estimates.

Next Steps

    • Just  starting out? Consider investing in a diversified, low-cost portfolio like our robo-advisor—Schwab Intelligent Portfolios.
    • Want to learn on your own? Open a brokerage account and get tips on becoming an investor, managing your money, saving for retirement and more.
    • Still need help?  Discuss how to meet your financial goals with a CERTIFIED FINANCIAL PLANNER™ through Schwab Intelligent Advisory™.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk, including loss of principal.

This information does not constitute and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.

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