Ask the Readers: Advice for College Grads?

I think what needs to be focused on is climbing out of debt…knowing what to pay first. If a graduate has loans and credit card debt what do they need to pay off first. With this goes with the idea of needs vs. wants (as you mentioned “lifestyle infalation”). It is important to understand that many students are starting from stratch. Chances are they will be in 5 figure debt and needing a place to live and/or a car for transportation. How do they juggle these financial needs while cutting down on their debt and still maxing out their 401k/savings…This is a lecture I would have loved to hear when graduating a few years ago.

I wish I would have known how destructive living without a budget was. 3 years without a budget led to 25 grand in debt. It isn’t about how much money you make, it’s about how must of it you spend.

It would be great if you can post a transcript of your talk. I’m a senior about to graduate and would love to hear what you told some fellow students.

Thanks

One of my college professors my freshman year gave a lecture about “5 year plan.” The only things I remember from his lecture are start a Roth IRA and contribute the max to it and don’t buy a car until you can pay cash for it. I did both of those things and now I am financially way ahead of all my peers 10 years later.

The compound interest thing is definitely a biggie as well as the quote “Live like no one else now so you can live like no one else later” from Dave Ramsey. Basically don’t try to impress your friends and you will be way ahead later in life.

1) The importance of saving for retirement while young.

2) The danger of credit cards (though as college seniors it may very well be too late to teach them that lesson).

I wish people had hammered home to live within my means. If I can’t afford to pay cash for it, I probably don’t need it. My hubby and I lived well beyond our means for the three years he was in grad school, and it lead to a lot of debt we’re still dealing with.

Compound interest, compound interest, compound interest.

Continue to live like a college student during the first post-college ‘professional’ job, and stick the rest of your income into a 401K, 403b, or Roth. Start with 20% of your income, and move up from there.

Resist the urge to lease a nice, shiny car and rent a rocking apartment after graduating. There’s time enough for that stuff later, when you’ve solidified your retirement and investment funds.

Finally, PAY OFF DEBT. And don’t use the credit cards.

Spend the student loan money only college fees, not junk. Make a budget instead of spending like you have just won the lottery.
Find a major that you can get a job with the day you leave college. Psychology and Art History are interesting, but they don’t pay the bills. You’ll be working at McDonald’s when you’re out of college. Look at technical degrees such as engineering, nursing, or chemistry that will allow you to earn a great living and build wealth.
Work hard to pay off the student loans early because you can expect to have to pay on your spouse’s loans once you find the right guy/girl.

There are three mistakes I made coming out of college, two of which I made.
1) Start an emergency fund. If you don’t have at least two months saved you are in bad shape. I couldn’t move out of my apartment to a different one because I didn’t have first month’s rent, last month’s rent, and security deposit.
2) Don’t take out a loan to buy anything. I was amazed at how foolish my friends were to take out car loans and even furniture loans as soon as they graduated. Not long after that, I bought a computer on a credit card and had a really hard time paying it off.
3) Don’t assume you will make more money in the future. After college, I immediately went to graduate school. I slowly built up credit card debt during graduate school (about $3,000 in the end) thinking that I would pay it off at the first paycheck of my real job. Then, I decided to take a low paying job that I really enjoy after graduate school. My debt wasn’t too large, and I still managed to pay it off in six months, but I shouldn’t have made assumptions about my future income.

I agree that a good emphasis on getting out or staying out of debt is important. Put a little scare into them. Additionally, it’s important to save as much as I could in the company’s 401k program. One of the best bits of advice I got as I started my first job was to put as much as I could into the 401k, if that wasn’t the maximum allowed, then each time I got a raise I should increase it as much as possible. Increase my savings as my income went up, not my lifestyle/expenses.

I heard an interesting spot on NPR today about the nation’s savings rate. Though the “expert” definitely said saving was important, he emphasized that what you save now is given to your future self, who may earn more. (And your present debt is a loan from your future self). It makes it hard to save necessarily if you think of it this way. However, as an anecdote, the “expert” himself, as an economics major in college, worked very very hard and scrimped and saved. What it amounted to was a lot of hard work and not that much reward, especially since he made a lot more money later. The key message was balance. Save money but don’t kill yourself over it. What you’re looking for is not money but freedom and happiness. I think that’s often lost in the mix for college seniors. And I think when you look at personal finance that way, it’s less like you’re depriving yourself and instead, giving yourself more.

I’d tell new grads that the best thing they could do coming out of college, with a new job for the first time, is to set up a savings habit, and a plan, with goals. ING Direct is terrific for doing this. I have 7 savings accounts with different goals in the names of each. The vacation fund is my favorite. I love watching it fill up, and my wife and I will be going on a fantastic trip out west this summer, and it will be paid for before we set foot on the plane.

Next, I’d tell them to live “low on the hog” until they have a $500 emergency fund.

Next, I’d tell them to get basic cable instead of the digital/satellite full tilt deal, and get out and meet some people instead for fun. You’d be surprised how much money you save going to talks/lectures/free concerts instead of watching tv, and the entertainment mileage you get.

I feel a general survey of personal finance would have been helpful for me. For instance, roughly what % of my income should I be spending on housing. In addition to high yield savings accounts and compound interest, I’d show them how easy it is to start investing via index funds.

I wish someone would have given me a better idea of what it’s like to completely support yourself. I had some help from my parents with school, but the little things like paying your own health insurance, and the cost of saving for retirement are bigger than a college student can get their head around. I’d also make sure they know that they are in for a big lifestyle change – as you were talking about before. It’s a huge transition going to work after being in school for your entire life, and most of them have probably never seen paychecks like they are about to. But if they realized that 75% of the check is already allocated, it will prevent them from getting too crazy with it…

It may not be personal finance related, but the best piece of advice I ever received was to “do what you love and the money will come.” Too many times, new college grads are focused on how much they are gonna make instead of the love of the job.

Read every book in the personal finance section of the library and know that having a good life isn’t about making a lot of money, but how you live your life. Eight years ago I was swimming in debt, now everything is paid for with cash. The thing is if it’s not worth saving for, or paying cash for, it’s not worth buying on credit. (1) Learn the true value of the dollar you earn: you have to earn $2.00 before taxes (income, property, consumer) & inflation to have $1.00 to spend. Think about that. You have to EARN $100 to buy that $50 dollar sweater; EARN $500 to make that $250 credit card payment: if you bought the sweater on credit, then add in EARN 2x the interest cost. (2) Save & pay cash for Depreciating assets & goods (cars, boat/ATV, clothes, vacations, food) and Borrow for Appreciating assets (house, property) (3) Use a personal money manager like Quickbooks or MS Money to track your spending–you won’t be able to kid yourself about how much you spend & where.

Open the high yield savings account, and put what you can into it. Any little bit will help.

Go to house parties or drink in with friends, rather than go to the bar. Kegs or $5 all-you-can-drink cups are a better deal than bar tabs and cover charges.

Don’t go crazy with the credit cards. And don’t sign up for every credit card offer you come across, no matter what free stuff they’re giving away.

Do get a credit card, though, but do your research. Find one with a decent rewards system, preferably cash. You DO need to start building credit.

Start a spreadsheet, and create a basic budget. Just list what your monthly expenses are (cell phone, tuition, rent, etc.), and then list your income. The key is to not spend more than you bring in, no matter what.

Don’t be afraid of student loan debt. It’s an investment, and you’ll be fine. You’ll pay it off eventually, the rates are low, and nobody has $100k or loaded parents sitting around. Student loans are normal.

1. Even a little bit of money saved now will buy a lot of freedom and peace of mind later (compound interest is your friend!).

2. Consider your career plans. Is your major truly the subject that you’re most interested in, or is it a fall-back or something you’re pursuing just for the money? All of those answers are valid, but they will probably influence how long you are satisfied working in that area and how you may want to approach the next 10 years. If your specialty is not your passion, work hard and milk it for all it’s worth, save and plan so that you can make a change later, with a buffer of savings and investments. If your specialty IS your passion, you can afford to choose quality over quantity when it comes to salary, because you’re in for the long haul.

3. Minimum monthly payments are a con.

One of the things I wish I had done was to pay better attention to my school loans. They were at something like 3% when I graduated. I had 6 different loans and for awhile was being billed for them individually. I got so much mail from them, all the same, that I eventually quit opening it all — just assumed it was another bill. So (you can see where this is going) I missed the notice of an impending rate increases and the alternative “lock in your rate by consolidating” option. Now my loans are at 7.14%. Oy vey. Obviously hindsight is 20/20, but that was stupid with zeros on the end!

If I were my younger self and needed to give myself some advice, I would say “Don’t trust anybody when it comes to your money” and “Start saving and stacking away at least 30-40% of your money earned!”.

During school (and several years after graduation) I lived paycheck to paycheck and used credit to make ends meet. This was typical of just about everyone around me, so at the time it seemed to be an acceptable means of living. I was obviously wrong.
If I could give only three pieces of advice to new graduates it would be:

1. Start a Budget!! This is the only way to learn the difference between WANT and NEED, and how they should be prioritized.
2. Start saving!! Call it an emergency fund. Call it retirement. Call it what you want. Just start saving. Even $1 a day adds up to something.
3. Credit is NOT the answer!! Enough said.

Most important, above all else:

Learn how to do and live by a monthly written budget, and have an accountability partner to help stick to the budget. (Shameless plug) – Refer them to this blog where I made my guest post on budgeting to get started .

Second most important:

Never borrow money, ever. Work extra jobs to pay off any existing debt, and to save up money to never borrow again.

Third, of worthy mention:

Never take advice from broke people.

Don’t think that you will live the same type of life you were accustomed to while you lived with your parents. Just because you graduate doesn’t mean you will get a job that pays well immediately. And just because you get a job doesn’t mean that you will always have one. I’m two year out, and was so angry when I was layed off. because I worked so hard in school to even get that job. Luckily things change, but if you manage your money well you’ll be ok an a situation like that.

One thing I’m sooooo glad I did after I graduated was track my mortgage via spreadsheet. When I bought my house, I kept track of every single payment on my spreadsheet and the running tallies of interest paid, insurance, principal payments, etc.

Tell them to download OpenOffice if they don’t have Excel and to keep track of EVERY loan they take out, even on Credit Cards and to track all payments and running balances.

For a $70,000 mortgage @ 6.25% and just minimum payments for 5 years we’ve paid over $20,000 in interest alone and the balance went down by about $7,000. Ouch, and that’s not even a huge mortgage compared to how much housing has increased here. Luckily, our house could now sell for 3 times what we paid for it then!

Now we’ve switched to Bi-monthly payments (versus once a month) and that alone has knocked almost 3 years off the term of the mortgage. We also increased the amount of each payment to speed that up.

Read the Automatic Millionaire and The Wealthy Barber. Follow the advice. Live well. In particular, look at the charts showing how much money you can accumulate by investing early in your life.