Ask the Readers: Advice for College Grads?
Monday, 28th April 2008 (by J.D.)This article is about Ask the Readers, Basics, Planning
Tomorrow I’ll be giving a short presentation about personal finance to a group of seniors at Western Oregon University. I’ll begin by providing a brief version of my own post-college financial failures, but I want to spend most of the talk providing two or three great take-aways that these young adults can put to use as they enter the “real world”.
I’ve considered discussing the dangers of lifestyle inflation and the value of goals, but maybe these are too abstract. Ramit suggested I provide a handful of actionable ways to maintain sound personal finances. (Opening a high-yield account, asking for fees to be waived, saving for a goal, etc.)
If you’re in college, what sort of personal finance information do you wish you had right now? What are you curious about? What are the things you want to know how to do (or how to avoid) once you’re out of school?
If, like me, you left school long ago, what do you wish you had known about money? What knowledge would have helped you when you were starting out in life? If you could give your younger self just two or three pieces of financial advice, what would they be?
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 don’t think you can hammer on the point of compound interest enough. Saving $1 at 24 is like saving $50. Saving $1 at 34 is like saving $20. Saving $1 at 55 is like saving $1. Not those exact numbers, but you get the idea.
Also- I think discussing and agreeing upon finances with a future spouse is essential. That you can learn to agree on a spending and saving style.
GL with your presentation!
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.
I think the most important information I missed (forgot to calculate) when a senior in University, is just how much time should be dedicated to the study of personal finance. It wasn’t until I was 32 that I realized that I spent more time agonizing over the specifications for my new television than I did managing a portfolio worth 100x the sticker price.
I was fooled by the financial industry that “advisors” actually advised, and assumed that I was being fiscally responsible simply cutting cheques to ABC institution.
Study doesn’t stop after graduation. The importance in continuing education only gets greater.
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
I wish I would have given back the ‘refund’ I got from my student loans when tuition and room and board were taken care of. Instead I used it for living expenses, which I could have paid for by getting a job, working harder in the summers, etc.
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.
Learn about your future spouse’s attitudes toward personal finance BEFORE you marry. If you’re a woman, find out what his attitude toward women vis-a-vis money is (this may differ from his overall attitude about women).
Have a prenuptial agreement; keep inheritances and savings you gathered before you married sole and separate; if he’s wealthy enough to support you without your having to work, do not let your job skills atrophy. Keep working at something marketable, even if it’s part-time or on a volunteer basis.
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 that when I graduated from college, I had a better appreciation for:
-The long-term benefits for living beneath my means.
-That, contrary to what I thought when graduating, I really would want to retire early.
-The benefits of home ownership, when you can afford it. (This might be particularly important to to emphasize given the media’s obsession with the currently goofy housing market.)
-Benefits of 401k, Roth IRA, and similar plans.
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.
I just graduated, and here’s what I wish someone would tell me:
1. How do you establish your first budget and figure out what “in your means” actually means, when you don’t have a clue how much to budget for rent, utilities, groceries, etc.?
2. How do you make the transition from school to work more streamlined? (This is very much on my mind, since I start a new job in about an hour.)
Thanks,
Julie
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.
My advice would be to try to live like a college student for a few more years. When I was in school, I lived in a tiny dorm room…that I shared with someone else. At the time, that was good enough for me.
After school, I eventually moved to an apartment, then a bigger, nicer apartment, then a house, then a bigger, nicer house, etc. It’s definitely easier to move up in spending than it is to move down once you’ve ramped it up, so my advice would be to maintain a “student” lifestyle for as long as possible.
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.
What are the financial implications of going straight to grad school full time after college versus getting a job and doing grad school later & part time?
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’m working on a post for this exact thing right now! It’s going live this afternoon if you want to check it out. (I just helped with a college presentation yesterday)
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.
JD,
Hammer the point about lifestyle inflation. I wish someone had pointed it out to me that I was happy being a broke student! Would’ve saved me 6 months of idiocy.
I’d show how companies make money off of interest payments (car loans, credit cards) and talk about what the real prices are one pays with using such devices.
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.
a big question when i was gearing up for graduation (and a big question my younger sis and my cousin are grappling with now) is:
“grad school???!!!”
yes, all the question marks and exclamation points are appropriate. it’s a scary decision to stay out of the job market for 2-7 more years, even if afterward you’re looking at a better future. maybe hit on a couple points talking about the cost-benefit there.
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.
1. Cut up the credit card and pay it off as quickly as possible. Even having one around for “emergencies” is dangerous because there will come a time when buying a pizza and a 2-liter will seem like a life or death scenario.
2. Create a budget and stick to it. This way, you know how much you have and where it’s supposed to go. Plus, you’ll never accidentally overdraft on your account.
3. Don’t keep up with the Jones’s. With the hope of looking like a baller, lots of people your age will be buying cars and clothes on credit and spendng 60% or more of their take home pay on a fancy apartment. 10 years from now, many will look at their savings, investments, and credit card balances and realize something is wrong. Save yourself 10 years: don’t put on the golden handcuffs.
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 only have one bit of advice. No private loans. Ever! Donate sperm, plasma, work 3 jobs, do anything! Don’t take out private student loans!
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…
Know what you are spending your money on and make sure it aligns with your values (and make sure you spend less than you earn). Educate yourself about personal finance, and investing (but target date funds are a simple place to start).
I think giving them a solid goal for savings rate might help–if you have something to shoot for, you are more likely to take action. Tell them the standard savings advice:
small efund/cc debt
401k to match
roth IRA
401 to max
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.
My best advice for those about to leave college and enter the work world would be to reject the common money myths they have heard their entire lives. No, not everyone has to have a car payment. Not everyone has to buy a house within six months of starting their careers. Credit cards are not the only way to acquire nice things. Basically, be very methodical in your financial decision making and do not rely on advice from others - follow your own gut instincts.
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.
I’m 24 and graduated 2 years ago. I think the best advice I can give is to read Suze Orman’s “The Money Book for the Young, Fabulous & Broke”. I personally tell all my friends who are just starting their first jobs to read it. It’s an easy and straight forward book with solid information that will get the majority of new grads in the right direction. Buy it. Borrow it. I have a copy that I bought just to lend to my friends.
However, I think if you’re already here reading through getrichslowly.org, you already have a good foundation for all your personal finance questions.
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.
I am a college senior and I’d like to know if there are any specific books that you recommend on this subject for 20 somethings. Also, if you could make your talk into a podcast that would be fantastic!
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.
Paying off debt, budgeting, and preparing for home ownership. Podcasts would be kool too…
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!
Never stop learning even after your college or career life , financing & marketing will be a real challenge in life .
Happy to read many , experience & post from you guys ,
Tracy Ho
wisdomgettingloaded
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!”.
Remember that your parents took 30+ years to arrive at their current lifestyle. Don’t try to emulate them within the next 10 years.
Remember that those of your friends who DO emulate them are probably up to their necks in debt, and are not to be envied.
Forget the Joneses.
Freedom doesn’t lie in having the biggest, best material goods. It lies in not having any payments.
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.
Hey J.D,
I just discovered this site a month back and am really loving it. I just graduated from college, got a job and looking for an apartment.As some have said, is to continue living as a college student for about a year till you are financially good enough. The additional money can help pay debt which you incurred in college. I set up an ING savings fund a few months back, which cuts some money every week automatically from my pay. Avoid buying expensive stuff such as large TVs, audio systems. Craigslist is the best place to look for such stuff for cheap. You can always get the “good things” later. It’s also good to maintain a list of stuff you bought during the day and graph it at the end. It helps you get a perspective on where your money is going. Lastly if you have time, read books and blogs like these for tips and ways to make money work for you. Thanks for the wonderful blog.
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 :-D.
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.
I’ll buck the trend…
If you can save, great! But for most college students, you have very little income. I wouldn’t worry about retirement savings, but instead try to put aside as much money as possible to get through lean times. That was the big debt I incurred in college.
Sit down with some kind of career advisor. Getting a bachelor’s in art history? Is that going to increase your earning potential? How likely are you to find a job? Most likely GRS readers will pursue a more practical vocation, but it’s worth noting.
Biggest thing would be to budget. It’s difficult to follow, but if you can at least loosely stick to one, you’ll be much better off when you graduate and the money involved is much higher.
Finally, and this is a big one, don’t try to live too big and too fast when you graduate! Sure, when you get that first real job and your income triples, it’s tempting to get a new car and buy new clothes and a big apartment, but you’ll end up without any wiggle room, a spending lifestyle that incurs lots of debt, and won’t have any money to save when you need it.
Personally, I only managed $2k in credit card debt, which isn’t bad considering some of my friends. But over the last three years, I’ve only paid it down $700, and that’s just in the last six months! That means three years of about $100 a month ($3600 for you math grads) in minimum payments and finance charges to pay $700 of debt.
Additionally, I got a great job and bought a used luxury car at $400 a month for five years. Sixty months of $400 a month! And of course, I didn’t have money set aside for repairs. So now I have a high mileage luxury car that I’m looking to get rid of after paying it down some more, and getting a more sensible ride. Again, $10k to drive a fancy car for a couple years when that could have bought a reliable vehicle.
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.
Echo most of the above, especially re: written budget. I’ve been out about 4 years from grad school. The number one thing i wish i had know then was how to get a handle on this. This website, D. Ramsey’s podcast for motivation, etc. Do your research.
Other than the budget, i think the single most effective piece of advice is to realize you’re in college. You don’t need the fancy things as the majority of students there don’t live fabulously rich and it’s not looked down upon to “live like a college student”. There’s a reason that phrase exists!
Get roommates, and if you can, take on a few when you get your first job. Pay off all debt and continue the rest of the advice above. Plus, having a group of friends around will help you meet people in your new location.
It will be tempting to get that new car, nice place etc when you get your first job, but 1-3 years coming fresh out of college living like a college student will easily save you 10 later on.
And don’t discount what your expenditures will be. Lots of new ones that you will expect living in the real world, but also a few you won’t (e.g. the $50+ dinners when traveling for company business that aren’t necessarily accounted for in your company’s travel expenses…)
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.
I wish:
1. I knew that as a graduate student I could open a Roth IRA
2. I was more aware of consequences of not saving actively and buying useless things like CDs, Gifts, Wine etc randomly
3. I had not laughed away my coupon-cutting roommates and instead embraced the method myself
4. I had started tracking my expenses in a simple spreadsheet
5. I packed lunches at least a few days per week
6. I cooked more at home
The list goes on. I did not *splurge* in the true sense but just not being aware of where my research assistantship was going amounted to that in the end.
Thank you.
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.
I love the question. As someone who’s weathered painful financial problems and is now in really good shape, I’d suggest to the college grads that they share resources to conserve and stretch their earnings. For instance, living with at least one housemate, rather than alone, can save 5k or more per year. This resource-sharing also cuts the emissions that drive global warming — a problem their generation cannot escape. My other favorite example is carpooling to work rather than driving alone, which saves me up about $10,500/year when you count depreciation. More details at
http://alison97215.wordpress.com.
Best wishes on your speech!
Alison in Portland, Oregon at Diamond-Cut Life blog.
Wow. Thanks, everyone, for the great replies so far. I’m at the tail-end of a long weekend vacation, and didn’t have anything prepped for this morning. (Poor planning, I know.) Because I knew I needed help with my presentation tomorrow, I decided to post this. I knew I’d get some good answers, but didn’t expect this many or this quality. You rock!
I am 23 years old and 1 year out of college. I like to keep the message simple which means 1-3 items so they are easy to remember. If i had to pick the 3 most important ones are.
1. Budget - This means track every dollar you spend and try to have a goal of spending less then you earn.
2. Emergency Fund - 3 to 6 months stashed away in a high yield savings account for those rainy days.
3. Save for Retirement - Its never too soon and compounding interest makes a difference
If you start with those 3 right aw3ay then everything else will come into place.
I wish I had known the importance of having an emergency fund instead of relying on a credit card for emergencies.
Every time I got the card paid off, an unexpected vet bill or car repair would put me back into debt. An emergency fund has let me live debt-free for years now.
Advice: Pick a community you like, where your workplace is within walking/biking distance. Don’t drive unless you have to. I drive two miles per day and it’s great to be impervious to the fluctuations in the oil market and money supply, unlike those who commute 70 miles round trip per day.
1) Freedom is happiness, debt is slavery. Stay away from debt and you’ll stay happy. If you don’t have the cash in your checking account, then can’t afford to buy it.
2) You don’t need a car. I repeat: You do NOT need a car. I ride my bike, use the bus system everywhere I can. 75% of America is amenable to this lifestyle (it isn’t easy, but neither is credit card debt).
3) Live within your means. If you can’t manage to keep this equation in check (Means-Life=Freedom Residual) then first change/limit the “Life” term, not the “Means” term. The “Means” should be on YOUR terms, not your “Lifes” terms.
Open a Roth IRA asap, even if it is only $250 your first year. College grads will be higher wage earners, thus Roth is such an outstanding investment for them b/o the tax ramifications. I started a Roth 2 yrs after college, but then didn’t put anything in during graduate school. Now that I am beginning to see the compounding interest effects, I wish that I had stuck to it during graduate school.
You can start your talk with Mr. Micawber’s advice advice (from David Copperfield:
“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
This pretty much sums it all up.
The biggest thing I was lacking when I finished college (only a few years now) was how to develop a budget. I just paid for everything on credit card while in college and my expenses fluctuate so much I had no idea how to formulate a budget.
I would also say drive home the point of not carrying a balance on the credit card. Explain the Type A and Type B credit card users so they can choose the right path for themselves.
Sitting down and planning out what all your monthly costs are going to run once graduating is really important. Then add in the repayment of school loans and retirement savings. I’m graduating in 2 weeks and have a job lined up, and was about to make some larger purchases until I sat down and tallied everything up and realized that I didn’t have as much spending money as I originally thought.
I agree with Pete - get a credit card while you’re in school if you can avoid temptation and pay it off each month. It may be slightly different now than a year ago when I graduated, but lenders apparently like students b/c Mom & Dad will supposedly bail them out. I went through school on debit and a small allowance and waited until my first job to get a card. By then I’d payed the full security deposit for my first apt - just the most immediate effect of no credit. Then the bank would only give me a secured card (of course they were giving out NINJA home loans at the same time). Debit cards can’t chargeback, they have less fraud protection and low limits, which can be a problem if you’re buying a computer, books, or airline tickets that month.
When you graduate and get a nice paying job, continue to live as if you were still in college.
The points I would make:
#1 You can’t accumulate wealth unless you spend less then you earn its simple inescapable math.
A> If you put at least 10% of your income into investments - you won’t feel it will give you freedom later in life.
B> You are NOT your stuff- seek friends who value you not the things you have or can give them.
C> Trying to maintain an image of wealth will cost you true wealth.
#2 Since it’s a young crowd stress the importance of compound interest!
A> start NOW, to get the magic of compounding working for you!
B> Return rates make a huge difference- don’t settle for a 4% CD!
C> Stocks are the most reliable way to get the returns you need
i> Don’t fear a market crash- that is a BLESSING for the young!
ii> investing can be VERY easy using index funds- very little work, instant diversification, less knowledge required and superior long term returns!
#3 Getting rich quickly is very hard and pretty unlikely. Getting rich slowly fairly simple and possible for virtually everyone, especially with over forty years to invest! Ultimately though it’s your choice, are you willing to sacrifice a little now for freedom and security later, or do you want to work at McDonalds when you are 80?
-Rick Francis
My tips:
1. Don’t just take the first job that comes your way. Research the salary for the area first and don’t be afraid to go to the negotiation table. Be up-front about why your skills are worth more. Document your own accomplishments at least quarterly, this makes updating the resume much easier.
2. Open a Roth IRA and max it out. Don’t delay on this one, because if you’re really putting your college degree to work, you will probably exceed the MAGI cap within 10-15 years.
3. Don’t buy a new car unless you can pay cash. It’s cheaper to pay for monthly maintenance than a monthly car payment. Also, learn to do your own vehicle maintenance.
4. Start an emergency fund. Set this up with a financial institution other than where your checking account is so you leave the money alone. Try to initially save 3 months of living expenses and work towards 6 months.
5. Pay off credit card balances every month. Also, get a credit card with rewards. Try to get a card that has a 0/low interest rate on the life of the balance transfers and transfer high interest balances.
6. Consolidate student loan debt. Try to get a low fixed interest rate.
7. Curb impulse buying. Make a shopping list before you go to the grocery store and don’t deviate, but allow for stocking up on sale items. Like my grandma said, if you don’t have the cash to buy it outright, you can’t afford it.
8. Save money for a down payment on a house. There’s no point in throwing away money on rent, not to mention the tax breaks of homeownership.
9. Open a high-yield savings account for major purchases and research your options before you buy. Pricegrabber.com and Pricewatch.com are my favorites for comparing lowest advertised prices. Slickdeals.net, passwird.com, and dealigg.com are great for getting deals. However, watch the impulse buying! Tuesday evening is the best day to buy on eBay, Sunday evening is the best day to schedule an auction ending.
10. Learn to cook. You can make your favorite meals at home for cheaper (and healthier).
-Rob
It seems everyone here agrees that living with in your means is the most important thing you can do to ensure future financial freedom. You may want to stress that having monthly payments that you can afford doesn’t count. As a college student I am sure I heard the word “budget” but ignored it as a waste of time. It might help to give them some guidelines to shoot for instead: rent/mortgage less than 25% of take home, 15% to Roth/401k, etc. Also tell them it is ok to figure in some fun money!
one thing I think is important is that many many new grads are going to make bad financial choices even knowing all the things they “should” be doing. They know they should fund their retirement, but they look at their check and just don’t know where the money could come from. They know credit card debt isn’t great, but they also know their earning potential will only go up and that they have things that they need/want right now. And you could never have told me not to buy a car. You can’t tell me that now:) Really smart people faced with building a professional life and possibly even a home from scratch on a not-large paycheck just can’t find the right path to walk financially. And anyone who has what they consider a “large” paycheck may find themselves living how their friends and co-workers do without any thought to if it really is how they should be living. So I think a discussion about real compromises and choices they should expect to make and how those will pay off is useful. Most of them probably know what they should be doing, but they don’t yet know how hard it will be to actually do it.
Wow, what a great topic. Besides seconding Daniel’s rec for Suze Orman’s “Young, Fabulous, and Broke,” I’d add:
1) Don’t buy upscale furniture right out of the gate. Odds are you’ll move at least once, and there’s no way of knowing the layout of your next apartment/house. My old roommate purchased a beautiful queen-sized bed in our old place, and it wouldn’t even fit up the stairs in our new one. IKEA and/or Craigslist is the way to go here, at least for a few years.
2) If you have the opportunity, live off-campus while you’re still in college. It’s often less expensive than the dorms, and the experience will help immeasurably when you have your first apartment in the Real World. My junior year place taught me basic bill-paying, cleaning, and how to live happily with (seven) others.
3) INTERN. Interninterninterninternintern. For money, if your chosen field offers it. There is no better way to gain experience and make contacts when you’re an undergrad.
4) Learn to cook, at least marginally so.
5) Develop a taste for cheap beer. Pints of Guiness add up after awhile.
Probably have said it — but I’d like to hear again, PROTECT YOUR RETIREMENT! I have SOOOOO many friends who dipped into 401K’s to alleviate debt. Basically, they stole $100,000 from their 65-year old selves. I think the temptation is always to “repay” ourselves, and it just can’t happen. And who knows where our federal retirement programs and even private pensions will be in 40 years…
I think sharing a successful roadmap and strategy that they can use post graduation and some kind of handout to take with them with the info and your web address for questions might be good. Here are some things I wish I knew when I got out of college:
1. Expensive clothes/ipods/stuff don’t impress anyone but yourself. These days you can buy clothing for 1/2 what you could before the cheap manufacturing all over the world started. Kids are obsessed with image, but you can find it for less at Target, WalMart, H&M, XXI, Old Navy and other discount stores. Same goes for video games and other toys, these big purchases hold back paying off student loans and getting on with your life. Now it is common to be able to buy electronics second hand or wait until prices come down because it only takes a few months.
2. Pay off student loans first. This should be first priority before taking on new debt if possible. If you are a lucky one and can move back in with mom and dad to save $$ do it. You will pay off things 2-3x faster. Otherwise, you will end up like some of my friends in their 30’s with kids and still paying them off.
3. Set a budget and stick to it. Don’t always say yes when friends call to go out. Don’t always say no either. Its a moderation thing with money and focus when you have to go to work in the morning.
4. Focus on figuring out a good job for right now and a job you want in a few years. Sometimes you have to take a job that is less money/responsibility/opportunity first when you have no experience just to get some experience to put on a resume and prove you’re employable. Then you make your move after a year or two and get closer to your goal. You may need 2-3 or 4 jobs to work up to the level where you really want to be, but it’s a worthwhile process.
5. Don’t buy a house or condo unless you plan on living there for 30 years. Seriously. That is how long you have to live there to make a profit now. Don’t get tied into a huge financial committment like that yet.
6. Enjoy saving some money and investing it each month.(in addition to the 401K of which you have to participate in) Don’t just go with what a commissioned broker says to invest in though, do the research yourself and build an emergency fund first and a nest egg next. Starting this early and getting into the habit is a great thing.
Avoid student loans like the plague.
I kept getting them because the culture around me told me they were “no big deal” because they were “good debt” and I wasn’t proactive enough to figure out if that was actually true. It wasn’t. Now I’m $100,000 in debt on a $45,000 salary. I can’t stress it enough: Avoid student loans like the plague!
This may be controversial, but I would say, “Pay off your student loans as quickly as possible!” You may get a higher return on your money somewhere else, but paying off the loans shows grads that they can do it–they can be out of debt! When student loans are so high or drag out so long, it can be discouraging and frustrating and influence people to say, “What the heck! I already owe so much! I’ll buy X, Y, and Z, too!”
Out of college: But definitely the idea that I could’ve started investing (and compounding) back then and my money would have more time to get bigger.
I’m 5 years out of college this May. I think one of the biggest pieces of advice is to NOT go crazy once you start getting that steady paycheck. The new car bug bites and many grads end up getting in over their heads when they realize that they now have to support themselves. This entails rent, bills, college loan payments (that 6 months grace period flies by fast), insurance, and day-to-day expenses. I would suggest that if they had the urge to buy an expensive toy to wait until they have over 6 months of regular monthly payments under their belt until they commit.
It is unfortunate because no matter what you tell them, only 1 or 2 will actually listen. I graduated not even 2 years ago and am more in debt now than I was then, even though I “knew” better and I have been working to pay it off. I knew all of the “do this not that” and I broke them anyway. The most intense spending period was the 6 months between when I was free from college and before my student loan payments kicked in. I would say several things. 1) Live cheaply. Rent, don’t buy right away. Save something first. 2) Analyze the financial ramifications of pets before you get them. We own 2 dogs- 1 @ 50 lbs and 1 @ 115 pounds. This pretty much prevents us from renting anywhere. If you want the great dane, fine, but think first about where you will live. (BTW, I love my dogs and wouldn’t trade them for the world.) 3) Avoid CCs if at all possible. It is SO easy to rationalize once you have a balance. If they already have a balance, encourage them to work a second job while they are young to pay it off. 4) Don’t fall into the trap of thinking that once you graduate, you will get an awesome paying job and be able to live how you want.
That’s all I can think of for now. My situation is slightly different than most as I got married halfway through college and so lived off campus and my husband worked, but we still couldnt make ends meet. That debt haunts us more now than anything else. We just want to get rid of the CC debt more than anything.
1) You need health insurance. Yes, even if you’re healthy. You do absolutely need it, it is a necessity. If you’re healthy and don’t have regular prescription needs, then go on with the cheapest plan your company offers, but you NEED HEALTH INSURANCE. GET IT. NOW.
2) 401k. At the very least, get your match. Do it as soon as you’re eligible. Trust me, you’ll never notice that the money’s not there. I made less than $700 per month last year and never missed the $10 or so that was deducted for my 401k.
3) It is entirely possible that you will still be broke. It’s even possible that you will be more broke. Yes, it sucks. You’ll get used to it. Learn those lessons well, they’ll help in the future.
4) Give it away. even if it’s just a dollar a week in the church basket or a tiny contribution a month to your favorite cause. You are never too broke to give.
5) Ditch the credit cards. ESPECIALLY if you wind up being broker than you were in college.
6) Sometimes it takes awhile to figure out where you’re supposed to be. That’s completely all right. So long as you’re moving towards *something*, you’re not failing. But pay attention- sometimes getting to the right spot means taking big risks with little or no financial reward. It’s much easier to take those risks when you only have to worry about you, so now is the time to do it.
I have one “child” who graduated 3 years ago and another one who will graduate in 2 weeks.
That first BIG paycheck after living on Ramen noodles for 4 years is so easily blown!
The best advice I think is to make a promise to not shop or buy anything but necessities for 8 months! (WOW THATS A LONG TIME) but slowly new grads accumulate debt without even realizing it. Sure the first month of paychecks are Wonderful… but then finally you hit the day when they start taking out health insurance and 401K money (if your smart) then Mom and Dad remind you that you need to get your own car insurance… ahhh then 6 months out of school the government sends you your first school loan payment… and then that computer you bought as a senior in high school dies (it did love you all the way through college)– and then on top of that you need renters insurance and deposits on electric, water and apt’s.
All I am saying is that if you can somehow convince a new grad to “continue” living like a pauper for those first 8 months then they will get an idea of how much money they actually have. Before they start charging (thinking they can pay it off next month!) and taking on new car loans etc.
I would tell them not to use spending money and purchasing items as a salve for those bouts of depression and/or unhappiness that will crop up at some point during their professional careers or life struggles. At best, it’s a short term fix and will eventually lead to further unhappiness and frustration as you try to claw your way out of debt.
I, like you, left school long ago. What do I wish I had known about money? EVERYTHING. Especially about investing and the power of compound interest. After that, I wish I had been educated about the pitfalls of credit and the real cost of living beyond your means: forfeiting your freedom!
But most of all, I wish that someone could have convinced me at 18 that I was NOT going to live forever, that I was NOT omnipetent (sp?), that these were NOT necessarily the best years of my life and that 30 is not old. Otherwise, I may not have listened anyway.
I just graduated last May and I am in an apt. where I am definitely overpaying. I can afford it, but it’d be nice to have the extra money that I could have saved by living somewhere cheaper. If you’re in your 20s and single, you do not need a crazy nice apt… especially when you’re stuck in a lease. Get a roommate, live somewhere cheap and save the nice digs for later!
Also, cook at home.
When you accept a job, if you go through some sort of orientation, and you have benefits, be sure to accept everything to the maximum for a few dollars more of deductions. You may think “nah, I’m young and healthy and don’t need this, and I need the $15-20 more now.” The medical insurance covers both longevity, medical, accidental, life, and long-term. As recent college grads, we don’t plan to stay with a job for decades, but if it happens, unless you are in perfect health the rest of your life, you won’t be able to sign up for those “extras” without exams. Take advantage of the open enrollment at the beginning of your probation-permanent Benefits sign-up. You can always cancel; you may not be able to add it easily again. It may deduct $10-20 but it is DEFINITELY worth it. I wish I had. Over the years, I have known two 20s-aged co-workers get hit on a bicycle and a motorcycle. They used their extended medical to get back on their feet; as they had signed up at the beginning of their employment. They needed it within 2-5 years of employment. I’ve been employed 25 years at same place, and now both my husband and I wish I had extended coverages, but our health won’t let us pass the medical reviews. Even the yearly open enrollment periods that jobs may offer are never as good, or simple, or as “open” as that initial sign-up. Also, if you get married, you can add your spouse, but you cannot add those start-of-job higher coverages! Plus, sign up for any IRA-matching-or whatever. Some employers enforce it, and I was very lucky to have one of those employers. Keep that in mind, especially for city, state & Eductational employers.
I didn’t have very high student loans when I graduated, but they sort of “normalized” debt for me. I had a hard time for a while, but once I was doing better financially, I didn’t really start working on debt because I didn’t think I could do much, or that it mattered much.
I did catch myself in reasonable time, but I see a lot of my friends who feel that debt is normal, and it seems to be something carried with school loans.
Thought of another one. Sign up for your blog, or Dave Ramsey or Clark Howard. Find a blog or a podcast that you subscribe to on a daily basis. Read it. Listen to it. It will give you ongoing reinforcement to apply some concepts to your life and finances. You’ll hear about mistakes other people have made and remember to step around those pitfalls. It will encourage you to watch what you spend, and who you trust. It will give you real-life experiences from people who have walked before you on the same road, and you may avoid some problems. My husband says the best investment he ever made was to give me his ipod, and get me to listen to Clark Howard & Dave Ramsey. Suddenly, I have the interest to increase our savings, take trips responsibly, spend less and save more. Plus, on my own, I’ve subscribed to your blog and one other. They encourage, educate and enthuse me.
List your priorities. If money is anywhere near the top three, then you may be following the wrong path.
Once your basic needs (food, clothing, shelter) your true happiness and well-being will only be met from internal sources, not the external sources of the matarial world.
Pursue self-awareness, which at a basic level, would require the alignment of “what you do” and “who you are.”
The greatest mistake would be aligning “what you do” with the expectations of social conventions, your parents, or your friends…
I’ll be finished my undergrad university degree in two years, and I’m hoping to get my CA through one of the big firms, and then pursue my MBA somewhere.
I guess the obvious answer is start saving to pay for my MBA now, but are there any other things I should know about grad school? I assume I will make a fair amount while getting audit hours at a firm, enough to cover living expenses and put a set amount away. I have a student credit card that earns me money towards a car (TD GM Card) and I much prefer keggers to going to the bar.
So, I want to start saving for when I graduate, to start an online business, as well as save for a graduate program. Advice?
All of the above advice is good but the thing I found was how much my habits were like my parents. How they dealt with money is how I deal with money. My dad was a spender and my mom a saver. In my 20s I was a spender and now I’ve switched to the other side and am totally focused on paying off all my debt.
So for students getting ready to start, I would advise them to take a hard look at how their parents handle money because the decisions they make (or don’t make) reflect how money was handled when they were growing up.
In addition to the many great comments about credit cards, compound interest, etc…I’d add this…
Know how to access your credit reports and keep tabs on your credit score. ID theft is always looming (speaking from experience) and being able to track those reports helps bring some peace of mind. Not to mention, I love watching my credit score increase
1. Pay off your credit card balance monthly
2. Do a demonstration of the power of compounding interest, especially at their age.
3. live within your means.
Showing an actual tax stub listing the taxes working adults pay might be helpful. I think a lot of new grads get in trouble when they take their annual salary, divide by 12 and think that’s how much they have to spend. Taxes & insurance take a bigger chunk than lots of young people realize. (Of course, you may just scare some of them into grad school with that one!)
I just graduated and wish I knew a bit more about prioritizing paying off student loans vs. putting money in my 401k. My wife is still in school through December.
We’ll only have about $8000 of student loans when my wife graduates in December, but if I skip out on putting money in my 401k, we can keep that down to about $2000 and have the loans completely paid off before the interest starts building on them.
To me it makes more sense to not take on an extra $6000 of debt and skip the 401k till January, but everyone say “max out your 401k”.
There’s plenty of good advice provided above. The only add on I haven’t seen is that you may want to mention that there are plenty of people out there who want to help you spend your money. They’ll be happy to put you in a car because you can afford the payments. They’ll be happy to sell you a Big Screen TV because you can afford the payments. As a matter of fact, pretty much anyone you talk to will assure you you can afford the payments for whatever your needs are.
I found that after school and with my first job I took on two new car loans (me and my wife) and loans (via agreements or via Credit card use) for furnishing the apartment, not to mention the student loans I owed, which suddenly left me a hell of a lot less per month to live on than I’d planned. A good chunk of that was by listening to the people telling me that on my new salary I could easily afford the payments.
I suspect speaking abstractly (live within your means) won’t stick. I’d really specifically point out common mistakes that most grads make.
1) If you can, DON’T buy a new car immediately. This is a common mistake I see friends making, when the first job after college often doesn’t pan out.
Now you’re even more burdened by debt, and have less freedom to switch careers and make new choices.
2) Show the value of compound interest and how much they lose by not saving for retirement immediately. A lot of people have NO idea they should already be saving for retirement, and if you ask they might tell you they’ll wait till their 30s or 40s.
3) Show them a bunch of quotes from smart people that says stock picking for the average person is stupid. Show the value and simplicity of index funds.
4) Speak about the value of an emergency fund, most people will have a cash cushion and think “I have enough for a PS3!”
But have fun! They should have some good questions for you.
One of the things I did right after graduating from college was to take an adult education personal finance class at the local high school. The course was taught by a financial planner and provided good basic investing, budget, credit, debt information. I still remember the charts documenting the various outcomes for retirement depending on investing start date.
when you discuss with them compound intrest, show how it helps (ROTH, 401k) and how it hurts, (credit card debt). Don’t talk to them about NOT having a CC, as they will take you to be an old foogie, and not listen.
Maybe something about how you don’t need to match the life-style of your parents right away, or of your friends? Your parents had Years and YEARS to get to the life-style they are now. That is something that i have been coming to grips with since i left college (age: 27)
I agree with others, avoid the new or leased car trap. Keep driving your current car, pay it off, once it paid off, stick your monthly payment into a savings account to save up for the next car.
Here’s my advice (I graduated May ‘07):
1. LIVE WITH YOUR PARENTS!!!! Why hasn’t anyone else mentioned this? If your parents live within 25 miles of your new workplace, this is the best bet. Even if you only pay them measly rent and do chores around the house, this will EASILY save you tons of money. My fiance saved $25,000 by living at home for a year and a half after graduation. It is a big trade-off, but it’s totally worth it.
2. I will also recommend getting a job in math, science, or engineering. My fiance and I both graduated from a technical college and are taking in 125K pre-tax combined (he is 2 years out of undergrad and pursuing his masters, I am 1 year out of undergrad). Our rent and bills are only costing us 25% of our monthly income. The rest is basically going to savings, and we are both saving roughly $2K a month.
That true luxury is not having a bigger TV; it’s knowing that if the car suddenly needs $1800 of work, you can cover that without selling a kidney.
1.) It’s important to dress well, but they can go to a thrift store to fill in their wardrobe.
2.) They’re young, so a low-paying job that advances them into a career with future prospects is better than a “high”-paying job that doesn’t advance their interests.
3.) Impress people with hard work, not brilliance.
4.) They should plan life like they planned their classes–each job or task they take on should build towards their FUTURE.
5.) They can be an artist, if they want to.
6.) They should start talking to their friends and family about their finances NOW. Everyone knows they have huge financial aid loans and probably some credit card debt. It’s okay if that’s a part of their conversation when they say they can’t go out for a beer. Practice. In five years, with ten-thousand in credit card debt, it will be really hard for them to fess up to their bank account.
7.) Money isn’t everything… until they get in debt.
1. $25,000 isn’t a lot of money. After having worked for $7/hour for so long, when I got my entry level job, I thought I was rich. I didn’t go into massive debt or anything, but I really spent a lot of money frivolously for several years and that kept me living in apartments longer than I really needed to.
2. Don’t lease a car. Ever. Leasing makes sense if you’re going to drive a new car every three years but there’s no reason for you to need a new car every three years so don’t do it.
3. Don’t buy a new car, ever. Buy a quality used car and either pay cash for it or pay it off as quickly as possible. Maintenance on a car with 100,000 miles on it is expensive but still a lot less than new car payments, and many cars being made today are designed to last 200,000 miles or more. Don’t believe the hype that used cars are unsafe or unreliable. It’s a lot better to have a 7-year-old car in the driveway of your house than to have a new car in a parking lot outside an apartment. True fact: My mortgage cost about the same amount as my rent plus my car payment, so once your car is paid for, you can afford a house.
I’ve always found information about compound interest to be powerful. I especially like the illustrations showing two investment scenarios: one starting early with a smaller investment; the other starting late with a much bigger investment. They end up in the same place, but the earlier contributor lets his/her money do the work.
BTW, great site. Congrats!
I graduated college last June, and I wish that I had known the importance of a budget then. My job didn’t start until August (though I had gotten the job in March, it just didn’t start right after school), and I got into huge credit card debt between June and August. When I started my full time job, I just thought how this was so much more money than I made part time in school, so I don’t have to worry about a budget. Then I got in more debt. Finally a few months ago I started a budget, and it has been amazing. I’m achieving my goals, and I feel financially sound (albeit still in a bit of debt). So yeah, budget!
I just graduated and the two things that are most important for me are: Set an aggressive savings goal and do it through automatic Direct deposit into an account other than the one you use for living expenses and don’t touch the savings except for reasons that were factored into your savings goal. Automated savings like this remove a lot of stress, it doesn’t really matter where the rest of the money goes so you need not worry about it. Second, except for student loans, pay everything in full every month. Using electronic bill pay means you can setup a bill to be payed in less than a min whenever you receive one in the mail so you never end up paying penalties.
Start saving for retirement with the first job you get. Later it is harder to save.
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BTW - I would love to see articles on “the dangers of lifestyle inflation”. With new job and raise for hubby we are fighting the temptation to keep expanding.
I wish I knew the true dangers of debt. It’s a simple concept, and I knew that debt was bad. But it’s like you don’t really get it until you got it (debt). If you can some how get this across to students before they get in over their head with credit cards, it would be much appreciated by them I’m sure! good luck!
It’s been said several times here, but I think you can’t focus enough on reducing lifestyle inflation. I had a job as an engineer out of college but continued living like a college student, and using the rest of the money to pay off my student and car loans. Within a few years, I was debt-free. This has had a HUGE impact on my life.. I have the time and financial freedom to do many things that people my age usually don’t get a chance to do. Additionally, I don’t have to worry nearly as much in general, since finances are a big part of the worries of most people.
I thought that once I graduated from college
I’d have enough money to do whatever I wanted. Not true. Even after college sacrifices are still necessary.
I was one of those who graduated w/o credit card debt and have managed to keep myself out of cc debt since. I felt like all the financial advice for people my age was about how to get out from under that debt, so I felt left out. What I would have liked was more info on 401(k)’s and Roth IRAs. I didn’t learn about Roths til I was 26! I lost precious years! (Well, ok, I was in law school for some of those, and made $0 one year, but I still could have been contributing some money)
Avoid private loans unless you are going to some ivy league school/top 10 in your discipline school and its going to payback. Otherwise go to a school that you can afford. Heck with the interest rate on subsidized loans i would say the same thing. My loans are at 3%, but now i think they are in the 6-7% range. Too much. Most companies don’t care where you went to school. Just get good grades and make sure your school is accredited by whomever is doing it for your field. (ie ABET for engineering, AACSB for business)
While in school, get a job thats related to your degree, TA, intern, grade papers, anything. It will pay off in the future. In the summer definitely intern. And take some of that money and put it in an Roth IRA.
Get a credit card just to have the history, but don’t buy meaningless crap or go out to eat for every meal, and don’t go out clubbing and buying $$$$ drinks. Eat at home/apt and go to house parties and drink other peoples beer.
When you do graduate and get a job, start the 401k and max it. Don’t wait do it right away. Also start saving and putting money into a Roth IRA get the money out of you checking/savings account so you don’t have access to it. Then save some more just for emergency.
Continue to live in crappy college places and live close to work. You commute to work 5 days a week, so live close. You can always drive into the city on the weekends to party. Just live cheap and with some other people.
I would stay away from moving back home. You’re an adult and should be on your own. Yeah you can save money, but welcome to the real world start paying your own way and don’t be a drain on your parents. If you do live at home, pay your fair share.
Also get renters insurance if you’re out on your own. Even while in school. If your junk gets stolen you want it covered. Its cheap 125 a year. It also covers you if you burn the place down. You don’t want to get stuck with that bill.
Don’t buy a new car. Wait a few years and save, then pay cash. Don’t buy other crap either, buy just what you need and pay cash (or use a cc and get rewards, but pay off your bill monthly). Never carry a CC balance.
Spend money on experiences. If you can travel do it now. Go to Europe and be a bum.
Don’t spend a bunch of money on the opposite sex. Don’t pay for their phone, or other garbage. If they can’t afford it they shouldn’t have it. They will end up just being a drain. Also if you go out with your friends and one fails to not pay his fair share, speak up and tell him to buck up.
Keep a budget. Just open excel. Put in all your expenses and your earrings, track your money and plan your purchases.
If you plan on doing grad school, find a job that will pay for it or most of it. I got my MBA and didn’t have to pay a dime for it.
Also don’t buy a house or condo. You’ll likely change jobs and move before it would ever pay off.
Thats pretty much the rules of what i did and do. My wife, 25, and I, 24, both earn 70 a year, we fully fund our retirement accounts, we save 2-3k minimum per month, sometimes a lot more.
I’m going to graduate in about three months and I have a high yield savings with a decent amount in it. I’m nervous about getting a job. I would personally like to know what I should pay off first (credit cards, loans, medical debt?) And when it’s ok to dip into my savings. I was taught NOT to pay bills with my savings, but if I don’t get a job, what else will I use?
The most important thing you can do to ensure your financial securioty coming out of college is to figure out what it is you want to spend the rest of your life doing. Obviously, it’s important to stay out of debt, and if possible to begin to build a nest egg. But most important, the first 5 years are a great time to explore some different career options and figure out what fits. The cost of switching tracks at that point is almost zero, whereas if you get to 35 or 40 and realize you hate what you do, switching tracks is either impossible or very expensive. Coming out of college, it’s easy to focus on whether your job pays you $25k or $50k. But the reality is that those numbers are tiny in comparison to the profit (financial and otherwise) to be enjoyed from a career that you like, is fulfilling, and that you are good at.
Wow, there’s some great advice on here. I’m hesitant to add to the flood of advice in your inbox at this point, but I do want to throw in my 2 cents as I just graduated about 2 and a half years ago so the memories are very fresh for me still.
Anyway, the main thing I remember about myself around that time and the main thing I see with my friends who have gotten or are still getting there is being completely and utterly OVERWHELMED by the amount of new information and expectations all at once.
With that in mind, it might make sense to focus on a few simple concepts that you drive home with many examples than lots of new information… it’s more likely to sink in. Particularly mention things that will make their lives easier or won’t require a lot of time, forethought, or energy but will pay off big… things like ING, contributing to your 401k (my trick is that I started at 1% before tax and up the percentage every time I get a raise), and easy budgeting software like Mint.
There’s my 2 cents!
I love Michelle Singletary’s “Life Happens Fund.” One of my rudest awakenings upon graduation was realizing that I now had to pay for the un-fun stuff–things that during college could be put on my parents’ credit card, like gas, medicine, trips to the dentist and doctor, oil changes and car repairs, etc. For the first year or so, I got really bent out of shape that my hard-earned money had to be spent in such ways (and not just on clothes, travels and eating out). Once I realized that I was an adult and these things were just part of life, I was able to let go of the annoyance and resentment and just accept it.
The Life Happens Fund is this: if you own a car, you know you’ll need money for maintenance. You’ll probably get a speeding ticket or have a fender-bender. So you need a few hundred dollars for this sort of thing. If you own a mouth, you know you’ll need to go to the dentist and may even need some higher-cost surgeries at some point. If you’re in your 20s, you’ll very likely be invited to 29847534 weddings, some of which you’ll incur costs for travel, gifts, bachelor parties, showers, etc. These things aren’t emergencies like losing a job or a severe medical problem, but they happen. So having a Life Happens Fund prevents tapping the Emergency Fund for car repairs.
There’s a great resource I ran across a few days ago that would be very helpful for college students and/or recent college grads.
The URL is http://www.ultimatemoneyskills.com. It seemed to have great info on financial terminology and great explanations of everything from loans to credit history & credit reports.
Learn how to define your financial goals! There is a ton of information out there for whatever those goals might be, but that’s all moot if you don’t know what you want. For example, the most common goal is probably paying off and staying out of credit card debt, and the only way to do that is to maintain a workable budget. One bit of advice: focus on what the grads CAN do, not what they can’t or shouldn’t do with their newfound time and (hopefully the resulting) money. Also, encourage them to learn about money, even if they are years away from being in the financial position to invest, they want to be as knowledgeable as possible when that time comes.
I wish someone had told me that stat about how if you max out your 401k and IRA for one year, before you are 26, if you estimate a 10% return per year, you’ll have a million dollars by retirement age.
I second every one elses opinion about emphasizing the power of compounded interest.
Six months ago, I had never heard of the term ‘personal finance’, and was (and still am to a large extent) totally clueless when it comes to personal finance issues (investing, saving, spending, debt, etc.) Since, I’ve been reading personal finance blogs daily and read a few books.
My personality type requires me to see the big picture, I’m not interested in details (not at the beginning at least). Talking to me about 401(K)’s, retirement plans, debt, credit cards, frugality, would probably not have had a great impact on me. I believe one understands the importance of investing in 401(K)’s early for instance, either with hindsight, or by grasping the big picture.
Reading The Boglehead’s Guide to Investing was a turning point. I believe that book and other big picture basic explanations (Rich by Thirty for instance) should be mandatory in high school and college.
I used ‘I’ in my post because I’m a grad student graduating in a few months. I’m probably not the only one so clueless. Good luck explaining the big picture without getting lost in the details!
I am currently in college and the irony is that after reading all the financial blogs I can find, I’m pretty scared for retirement. As far as the entry is concerned, I wish there was a class on personal finance. I realized that if I wasn’t curious about things myself, then I wouldn’t have known the power of compounding interest, index funds, and basic principles of frugality. if anything, i wish i knew how easy it was to save and invest and how time is on their side.
Mindfulness. Just the idea of paying attention to what they’re doing with their money, instead of letting it dribble through their hands through sheer inattentiveness.
Lots of terrific points. I graduated 2 years ago, and here were my key takeaways:
(1) Budget. It is incredible just how much of your paycheck gets chipped away at by the little things. When I was in college, I didn’t have to worry about health insurance, utilities (electric/water/sewage), home/rental insurance, auto insurance, car maintenance, gas, telephone bills, and those are just the ones I can think of off the top of my head. That’s not even including the larger chunks that come out to pay off student loans, maybe a car payment, rent, and TAXES. Seeing a real example of a budget would have been great. This ties in with earlier tips of providing recommendations for the budget (e.g. no more than 15/20% for rent, etc)
(2) Compound interest. It can work for you, or it can work against you. Along those lines, provide explanations of 401(k)s, IRAs, and their Roth counterparts. It’s hard for young people to think of retirement (at least, I found it difficult) so maybe you could get them to think of it as wealth. This is the portion of your savings that will grow untouched by targeted ad campaigns. This is the seed that you plant, then let your automatic sprinkler system water, and when you’ve forgotten all about it, it feeds you when you’re hungry. (or something like that, I’m clearly not a garden person)
(3) Saving. It is important to get into the habit of saving. This can’t be stressed enough. Look into employee stock purchase plans as a method of diverting a portion of your paycheck before you can touch it. (It’s up to you whether you want to leave it as stock or sell the stock and invest elsewhere, but either way, it’s in savings and not in your spending account.) Saving is your only effective weapon against combatting lifestyle inflation. (One could say that willpower is another weapon, but really, against marketing campaigns? Willpower is pretty weak.) Any time you get a bonus, or a raise, divert as much of that extra income into savings before you can touch it. That first year out of college with a nice big paycheck? Really, really hard. It’s just so tempting to spend on new shinies! Make a list of all your wants (and really, they are only wants, since you managed to survive 4+ years in college without them) and then set a time line during when you’ll allow yourself to buy them. Depending on the price of the items, I’d propose 3-6 months after your first paycheck for your first big purchase, then stagger at 3 months for each subsequent toy. It can be hard, but hopefully, it’ll allow for you to save up to buy it all in cash.
(4) Pay cash, not credit. Definitely get a credit card with good rewards, but pay off the balance in full each month. If you can’t trust yourself with a credit card, I’d still recommend getting the credit card but locking it in a safe deposit box at a bank or something.
J.D., I think it’s great that you have this opportunity to share your wisdom with college seniors. I’m sure they’ll learn a lot! =]
1) get rid of any credit card debt ASAP
2) save on EVERY paycheck … 401k, espp, ira, savings account … but make sure you stash away ANY amount you can.
I disagree to some extent with paying ccard debt to the detriment of saving alongside it. I did that and wish I would have saved some along the way. Do BOTH! even if it means delaying the credit card paying off a little bit. Consider them together as an expense. As the credit card interest decreases due to lower balance, shift more into the savings accounts.
Learn to cook. It is cheaper, and way healthier with less calories, than eating out. Also, dinner parties keep your friendships up.
And chicks dig it (and guys too I suppose). Along those lines, make sure your eventual significant other has some financial sense (or are at least willing to learn).
For those who are fortunate enough to have the means to max out a 401(k) and Roth IRA, I encourage you to tell them to do so right away.
If they can aviod lifestyle inflation, any raises will be money for them to spend without guilt.
Break a leg tomorrow, JD!
I graduated in ‘04, and the most valuable thing I did was find a financial advisor who is excited to make money for me, though I am a small-potatoes client. I started a 403b right away, so I know my future is secure, and I also use a cash management fund for my money as it comes in.
It’s important to know where your money is going. As far as I can tell from my own experience, cash-only is the best way to truly stick to a budget, as fontraid said.
Make sure there is room in your budget for fun, otherwise you will hate your budget.
1. Emergency fund. Ignore relatives that tell you that you don’t need one because they will help you out in an emergency. Rubbish.
2. Try not to borrow money from family, instead get down payment assistance, tuition, etc. as a “gift” if you can (you could pay it back later if you want but they are not counting on it). If you can’t, I’d avoid borrowing from family/friends altogether.
3. Learn how to cook healthy from scratch and look up recipes online, but don’t buy every kitchen gadget under the sun. This will save you $$$ and extra pounds.
4. Watch entertainment expenses. Eat and drink at home with friends. Avoid the pricey cable and video systems if you can. The library is awesome!
5. Use credit cards wisely. Do not carry balances. Do not make late payments. Do not take cash advances. Do not exceed the limit. (get my point?) Do get cash back.
6. Start investing NOW. (watch fees)
7. Student loans are OK, but only take out what you need, not the max the feds will give you. If you can, go to a state school for grad school, you hopefully won’t need to take out private loans for this. Look into fellowships and assistantships in your field. In some fields, you can get PAID to go to grad school!
8. See the world. If you are a college student, you are used to living cheap, so broaden your horizons and backpack around Europe. Well worth the time and $$$ investment. When you are older, you will have “responsibilities” that will make this more difficult.
9. Do your research and never stop learning. Have a financial question? Search online and read books. Talk to friends and relatives about how they manage adulthood. Read personal finance blogs.
10. Car = money sucking monster. Feed as little of your money as possible to it. Buy used, bike, walk, or take public transportation.
11. Yes, you need insurance (renters/home, car, disability, health). You do not need life insurance right now, and don’t buy anything but term life insurance in the future when you have dependents.
12. Start and contribute to a Roth IRA and a 401k NOW.
13. Index funds are your friends and learn about the tax implications of your personal finance decisions.
14. Don’t become a burden on your parents. Get your own place or pay rent like a tenant if you are at home. You are an adult now. Act like one.
15. Keep your lifestyle in line with what you earn, not what you wish you were earning. Spend on what you enjoy, and scrimp on what you do not.
16. Take good care of your appearance and your health. Your body and your wallet (increased income, fewer med bills) will thank you for it.
I wish I had known more about credit in college. My stepfather was a spendthrift constantly in debt and always told me credit cards were evil, so I never got a credit card or learned about how the credit system works.
When my sister and I moved to northern California from Hawaii in 2003 (I was 24 then) and needed to buy a car, we got duped into a 24% APR on a used car because we had no idea about credit histories and believed the car salesmen when they told us 24% was the only rate we could get because we had no history.
We wised up quickly and paid off the car in 13 months, and we also each got a credit card so we could build credit history because we wanted to buy a house in a few years.
I think it’s important for college students these days to know that credit cards are not evil and that they can be a great tool in helping to build credit history, but most importantly and to learn how to use their credit cards responsibly by:
I just want to reinforce the idea of giving them some budget guidelines–making a spending plan (sounds so much better than budget!) without having an idea of how much each category should cost is so hard.
Real life example–my sister has been out of college for 2 years and just moved to Alaska for a job. Before she left, she asked me how much of her income should go towards her apartment. And she has been renting in various locales for over a year. It would be nice to know before you start making these expenditures rather than after.
I graduated in ‘01 and got married in ‘06… An interesting point I wish someone would have told me is that while you are young and single and supporting yourself after college, the temptation is HUGE to “live it up” and enjoy yourself because you “won’t be single forever.” Also, people sort of expected that the first few years after college would mean debt, so I just went ahead and racked up the credit card debt. No one told me that this was the BEST time to be saving my money!
Instead, I spent my meager earnings traveling, going out with friends for dinner all the time, living in a luxury apartment…
And then wham, now all of a sudden I’m married, trying to save up for a house down payment, retirement, possibly starting a family, saving for the kids’ college fund… We’re finally debt-free and saving money, but it took a while. And because we’re pushing 30, we have a lot of time to make up for.
I could’ve been saving those years. Or at least enjoying my time being single without torching all of my money. (ie, travel on a tight budget, spend more time at friends’ houses instead of going out, etc.)
Remember, while lots of your friends might be able to “afford” their lifestyle, this might not be YOUR situation. And you never know how much debt their lifestyle is putting them into. My dad used to say: “So, if all of your friends are jumping off the Empire State Building, would you, too?” The same goes for spending and lifestyles and debt.
Furthermore, as people are putting off marriage and kids, this “spending single” phase gets protracted…
You never know what you might need or what your goals will be in your future, so it’s best to set aside a certain % of your paycheck as off-limits NOW, before you “need” it. Just rope it off, so you never even miss it.
“Need” and “want” are two very different things.
Personally, I think a combination of general ideas and actionable items is most useful. General ideas in the sense that so many mistakes can be avoided if you live within your means and attempt to plan for the future (emergency funds, retirements, etc.)
At the same time, even with all the goals in the world, there are some technical and actionable knowledge that people need that many college students just don’t have — how credit works (and its importance for car /home loans, etc), opening up bank accounts, how a retirement fund might work, how to manage debt and eventually stay out of debt, etc. Even opening a high-yield savings or investing in some sort of bond. It may seem silly to stress such specific items, but so many college students just have no consumer/personal finance education, and without these basic skills, they’ll be unable to execute broader goals.
I wish someone would have stressed to me the importance of researching the best possible deals on and then saving up cash for big ticket items that I wanted post-graduation.
A person is not as apt to make foolish spending choices when they have worked hard to save large chunks of money for things like furniture, elaborate computer systems, electronics and home appliances, and if they’ve done their research to find the best buys or deals on them. Often, just keeping your ears open and putting out the word for things like furniture can yield used but great-shape furniture items from those that are moving, downsizing, etc.
Also, though it’s tempting to ‘celebrate’ that first job in your field by buying some big things you feel you deserve, that is when it’s most important to be frugal and wise with your finances. Much of a young college grad’s future rides on a good credit record (renting, buying a home, buying a vehicle, and even some employers (particularly for high-security jobs) now look at these things to factor in if one is trustworthy in certain job fields.
Wow. When I finally get a chance to read these later today, it’s going to take a LONG time.
I set up both of my daughters with funds so that (like me,) they would be able to graduate without debt. Unfortunately, neither has taken advantage of it and I seem to have wasted a lot of money. My advice is really for parents that are helping fund their kids college:
Pay only the actual costs associated with working towards a practical degree. And only pay your portion upon seeing the report card.
Thx jegan
(Everyone else has taken the “spend less than you earn” and “save” lectures, so I’ll try to hit areas I didn’t see, although I might be repeating.)
If you have never talked to your parents about how money worked in your home, now is the time. Otherwise, you’re likely to rebel against everything your parents ever did, whether it makes sense to or not. It’s just part of the growing up process. Once you know the whys behind why your family of origin used money the way they did/do, you can think about it more objectively. Otherwise, it’s too easy to make emotional decisions to “backfill” all the times when you felt that you didn’t have enough. Or, conversely, you’ll feel that you have the right to all the things your parents spent 30 years working and saving to have.
Subscribe to a financial magazine that speaks to you, and read what you can of it. Ask for it as a gift, even.
If you accept a corporate job, talk to the experienced men or women in the office about the benefits. Most will have wrestled with the insurance, retirement plans, etc., and have opinions and advice you might find interesting.
If you really want to accumulate wealth, you need to:
– take a few calculated risks (maybe move, change jobs, etc. to increase earnings, start a business, invest for the long term)
– make a few sacrifices (work long hours, go back to school, travel a lot)
– and be frugal with your spending.
There is always some way to make a ton of money quickly, but most of us aren’t in the right place at the right time, with the right idea, people, and investors. Go for it, if you want to — it’s best to do it when you’re young and don’t have a lot of dependents or commitments. Always have a fallback plan, though!
Just because you went to college doesn’t mean that the world owes you a good living. You need to work hard, keep learning, and be a valued contributor wherever you work. And choose your employer carefully, and with your eyes wide open. There aren’t very many “safe fields” anymore, so be prepared to start over a few times during your lifetime.
I would probably try to focus on a few key concepts. High on my list would be:
#1: retirement contributions and the power of compound interest. If they set up their 401(k) contributions now, on autopilot, they will never miss the money.
#2: the importance of an emergency fund. This is especially important as they transition to living independently, when every random expense will be truly unexpected.
#3: As many others have pointed out, it’s easier to never have luxuries than it is to give them up. It’s sort of romantic to be young and poor and going without–it’s not so romantic to get in over your head and have to backtrack.
Finally, I’d like to add that this issue came up at a particularly relevant time for me. I’m long out of college, but after many years of training, I’m about to take a job that will triple my current income. It’s been all too easy to mentally spend some of that money, when really, once we factor in anticipated increases in our expenses (maxing 401(k), higher rent, and, hopefully, child care) we won’t have that much more disposable income. It’s good to be reminded not to anticipate my means too much!
I’m in college now and have amassed a lot of student loan debt and my fiance is graduating with a lot of debt of his own.
We want to know how much of a percentage over the minimum payments we should make on our loans (together total to $70,000) to get out of debt faster.
I’m in college right now, and I’d say the best advice would be get out of debt and stay out of debt. So many of my friends don’t understand this concept. Then show clearly how saving money and investing builds up with compound interest. Show some clear numbers. Like skip the new car payment of $400 a month, invest it, and you’ll have x amount this year, x amount in 5 years, 10 years, 20 years, retirement age. Its blows my mind how many people my age don’t know and don’t care.
As someone who’s going to be close to $300K in student loan debt (including private student loans)… I’d like to get some advice on the same thing Kara above said. Based on my calculations, my minimum payments will be close to $2k a month. Doesn’t leave much room for anything else. I’m graduating next year from graduate school to the tune of an average $40k salary for the first 3 years.
However - the one thing I have been good at is staying out of credit card debt. I have never carried a balance, ever. My secret to budgeting is to have multiple credit cards. I assign a purpose to each credit card. One is the groceries/gas/life necessities credit card, another is the shopping credit card, another is the “necessities for school/textbooks” credit card, etc. I always found it hard to keep track of where I was overspending, and by having a designated credit card for each portion of my budget, I got a neat monthly total for each portion. Then I’d know what I need to cut back on for next month, and where I have some wiggle space.
Also, a long time ago, someone told me that rent should never be more than 30-40% of your monthly salary (with 40% being on the high high end).
I’m 3 years out of college and have always been financially minded. What I still have a hard time grasping and figuring out is what the balance should be for 1) paying down loans 2) emergency savings 3) retirement funds 4) saving for a home 5) general investments
It’s a fairly frustrating issue to me because on one hand, I’d like for the loans to be gone. On the other hand, I want to invest (both for retirement and just more general investments). And then there’s the issue of the house… in the next few years I know we’ll buy one (nothing too huge or overpriced), but I’m hesitant to take on more debt.
Watching all the comments since I posted, and remembering back to college (or even that presentation from last week) - I’d stick to big picture things (as someone above mentioned).
Figuring out personal finance will let you do things. You will be able to have a family, go on family vacations, have a house, etc. Trading those for going on vacations, or cars, or partying in Vegas now is not worth it. Still do some of those things, live life, but don’t mortgage your futures.
If you figure it out now, you will be secure. You won’t over extend your self and lose your car, or your house. You will be able to offer your family a solid roof over their heads. One you know you can afford and won’t lose.
Eventually you will be able to retire and travel and enjoy life.
The media and corporations and banks will all give you enough rope to hang yourself. They will not protect you from yourself. You have to do it.
It is a long haul. It is not easy. No question. Your lives will be fuller and richer if you work for tomorrow today. You spent the last 17 years working to right now. That was not easy but it has paid off as you graduate. That sacrifice and forward thinking does not end when you graduate.
I graduated college last year, and while I never had horrible money managing skills, as I always had money to take care of my needs, it would have been nice if someone stressed to me the importance of a budget. Luckily, I am learning this soon after graduation, and stress this to my friends.
It is very easy to get caught up in going to bars or out to restaurants, or buying clothing, electronics, etc…only to accumulate more debt on top of the debt you graduated with.
Also, aggressively paying off debts and saving money. These are the 3 most important things that I wish someone would of stressed to me during college.
As the saying goes, “If you fail to plan, you plan to fail.”
As a current college student, I’m amazed to see how many students lack the forsight to see how expensive their student loans will be in their 30’s and 40’s.
Another saying that I think is relevent to personal finances is : “When the student is ready, the teacher will arrive!” That is probably a loose parphrase, but I think it rings true to finances, and life in general. Unless a person is open to financial advice there isn’t really any point trying to convince them otherwise. The School of Hard Knocks is unforgiving and often gives the lesson after the trial.
Anyway, good luck with your presentation!
Probably too late now, after 138 comments the horse is dead, but my two cents are that you should recommend that the soon-to-be-grads take interesting jobs and not focus on making as much as possible. Leave the credit cards behind, challenge yourself to define yourself by actions and accomplishments. Forgoing one’s comfort zone and applying energies in constructive and meaningful ways will go much further in developing personal financial planning skills than understanding the magic and wonder of compound interest.
You have to expect that of your audience, you will only reach a small percentage who is looking for meaningful guidance, the rest are just filling seats. Target that small group, portray your feelings and experiences in a way that demostrates that personal financial planning is neither static nor homogenous and is the opportunity to gain control of one’s life.
What I wish I had known is that understanding money and personal finance does not have to compromise other, loftier beliefs.
As a college student, I was really into literature, politics, philosophy, Big Ideas–and I indulged in these pursuits as a way to escape the materialism of my family and American culture. What I didn’t get was that by not having a good command of money and finance skills, I was merely a watered-down example of what I was trying to escape.
Like many students, I considered money to be necessary, though dirty, and not worth getting overly involved in, lest it derail my other interests. Certain concerns about money seemed arcane and petty–the price of this, the price of that. Though I didn’t have many material cravings as a student, I was nonetheless a consumer of some sort (lots of pizza slices, coffee, books, etc.), and I didn’t really understand my role as such.
Fortunately, I’ve been able to meld my intellectual proclivities with an interest in how money and material culture work. But it’s taken a few years to do so. If I had made the connections back in college, I would be richer today in more than one way.
As a recent college graduate and first-year grad student, I wish I knew more about investing.
I’ve never had difficulties with personal finances–no debt, no student loans, good use of credit cards, have savings account, etc. However, I am currently in the process of learning about IRAs, Roth IRAs, 401(k)s, mutual funds, etc. I wish there was a class in personal finance/investing offered at the university! Take advantage of that compound interest!
My advice would be not to listen to all the damn advice. Your life is what you make it. Seriously, as my graduation approached, I got sick of hearing how difficult the world was going to be or how wonderfully successful I would be. Nothing is guaranteed, and you can’t depend on supposed to.
I got plenty of great advice. What I wish I had followed:
1. IF A FELLOW IS WORTH SACRIFICING YOUR ECONOMIC FUTURE FOR, HE WILL GO OUT OF YOUR WAY TO MAKE SURE YOU DON’T.
2. You will never regret the expensive private college degree in Humanities; it has enriched your life immeasurably, and the problem-solving skills you acquired will pay off not only you but your employers several hundred fold. What you WILL regret is going along with all those expensive dinners out with your friends instead of paying off your student loans. Cleaning your friends’ apartments together is roughly one hundred million times more fun than going out to TGIFriday’s, and no-one is forced to wear flair.
3. When your graduation present is a washer-dryer, no matter how neat your stepfather thinks the all-in-one unit is, request a cheap stackable. A washing machine that also dries does so for three whole cycles.
4. Live closer to your work. Thirty hours a week on public transportation is a HUGE drain. You were right to try to think of it in a positive light, but frankly, it sucked the life right out of you. Yes, the city is expensive— and that’s why God made the sort of annoying roommates I put up with now.
1. Don’t worry as much about every latte - keep your overhead low - have roommates, cheap rent and cheap transport.
2. Especially if you are a woman, make sure you learn how to negotiate for a raise!
Hi, I graduated last year from college and married my husband who had just finished his first year of graduate school. He is just finishing his second year and has accumulated nearly $50,000 with two more years to go! I’m working which is helping out slightly. We are contributing 8% to my 401K, but have not contributed anything to our IRAs. We also have also started to pay back loans slowly. I’m sure there will be a few students you will be speaking to that will be in my current situation, and here’s a few things they should know answers to:
1. What to contribute to first or to contribute to at all concering IRA, 401K or student loans?
2. What should be the priority between putting more money into a savings account (for a downpayment on a house, unexpected pregnancy, etc.) or more into paying off loans?
3. Are there any secrets when filing taxes to help save money- with one spouse working, the other a student?
-Thanks
Don’t buy a new car when you get that first big paycheck. It more or less worked out for me since I bought a small, reliable car with good gas mileage and it was far less expensive than what everybody else told me I could “afford”, but I shudder to think of how much money I wasted on that new car smell. I could easily have an extra $10,000 saved if I had just bought a 5 year old Civic instead.
Once you get that first post-college job, concentrate on paying off your debt (student loans and credit cards). You will have more money once you don’t have as many payments to make.
In order to do that:
1. Keep living like a student (cheap housing, cheap food, cheap car).
2. Do not go further into debt (new car, etc.)
3. Save up a fund for emergencies. Know what is and isn’t an emergency.
When you’re unemployed, and interviewing for jobs, remember that the light at the end of the financial tunnel does not come when you start your job. Not even when you get your first paycheck, since that check will be paying last month’s bills. It takes a couple of paychecks, even a couple of months, to get a comfortable cash flow going. Resist the urge to celebrate too early!
New car loans, and credit cards, aren’t necessarily a bad thing. You’ll have to make those decisions yourself. I went through my leanest times having a credit card with a $1000 limit, and a brand new car with payments of $190/month. With the car, I knew I was paying a premium for extra reliability in the first few years of its life. I made that decision with my parents’ help (they helped me figure out how much to budget for payments I could really afford, and they helped me negotiate for a really good price).
There’s another lesson there: if your parents are good with money, ask for their advice and listen to it!
Ask. Negotiate. Do not wait for perks, raises, or fun assignments to be handed to you. While you wait, they are being given to people who had the guts to ask.
Do not buy stuff to fill up your empty first apartment. Your future self does not want your poor ass student self picking out furniture. Get the minimum, and if you don’t care about quality, use freecycle or garage sales to get the stuff you need on a catch-and-release basis. Beware of accepting large/unwieldy gifts from your family, if they come with strings attached (”you can’t freecycle your uncle’s heirloom table!”)
Similarly: when you buy stuff, consider its whole life cycle. What will you do when the item goes out of fashion? When you give up that hobby? When you move? Go through a couple of moves and you’ll realize that every time you are trashing stuff that you once thought was worth spending money on.
Career-wise, figure out what you WANT to do, not what you feel like someone with your major should do. Remember there are always more opportunities in the world than anybody has thought to tell you about.
Develop a hobby that could, theoretically, pay the bills. (For me, it was web design, and playing around with computers). This may become an alternate career path, OR you may be able to blend your expertise here with expertise in your regular field. Similarly, if you change majors or careers, don’t forget that your former field left you with skills that are still useful in future jobs. Real world jobs/careers/opportunities are rarely contained within exactly one field. (I’ve been a biologist who could program; a writer who understood biology; a web developer who could write; and many other combinations of my careers & hobbies).
Your income is your number one asset and financial tool. So do what you can to keep most of it…
*Budgeting - managed money goes further.
*Saving - pay yourself first.
*Giving - an open hand/heart allows doesn’t restrict the flow of finances in and out.
*Debt/Unrestricted Spending - it’s your money, why do you allow someone else to attach their name/ownership to it?
I think these four principles can make a world of difference in anyone’s financial situation.
I’ve been out of college for ages.
In hindsight, I wish I had not bought a new car.
I wish I had saved that money up for a down payment for the house. It is true that we make more money as we get older and the loan amount will be less.
I wish I had information about where and how to start a Roth IRA.
I have been out of college for only a year, but if there is one thing I can add to all the great comments, it’s this: Save as much money as you can, as soon as possible, for as long as possible.
Yes, $1 saved now will be worth over $2 in 20 years (I think), seems like we all know that part of the equation. But, furthermore, that $2 will most likely be needed by then to pay your mortgage, take care of your family, put your kids through college, start your own business, etc. What would you put “extra” money towards today - a new iPhone, a movie ticket, a night out? Which is truly more meaningful?
Maybe things are different up here in Canadaland. I’ve only been out of school for 8 years but I have to say all these responses confuse me.
New car? Buying a house? You’ve graduated not won the lottery.
Get a job. Pay off your student loans. If you have any thing left over, invest.
Please post some sort of transcript of what you say. I am at Eastern Oregon University and would love to hear what you are telling them at Western.
First of all, I’m graduating this month. Obviously, since I’m here, I’m pretty financial savvy. I’ve had a job lined up since last fall, and have no worries about surviving until then. I have in fact paid off one student loan, and will probably put my excess savings towards another once I’ve got a positive cashflow again.
I would love to hear a discussion about balancing between short, mid, long term savings goals and just living your life. I’m having to juggle getting my emergency fund fully funded, paying off loans, saving for a wedding, buying more professional clothes, getting a ‘new’ car, saving for a house, and getting retirements savings going. That’s a lot of conflicting goals!
Most would say hold off on the car and the house, however my car is 16 years old, over 215,000 miles, the heat is going, it needs a new belt, the transmission is getting worse, and my whole steering system is slowly disintegrating. And that’s without going into issues like not being able to open my own hood. So, I need to save to get a new car before this one completely bites the dust or winter, whichever comes first (no heat in wisconsin = bad). And it needs to be a reliable car, not a junker.
Saving a down payment for a house as soon as possible, is important for my fiance and his dreams. He has always planned to open a blacksmithing shop, and obviously he needs somewhere to do it. We’ve discussed the options quite a bit, and the best one is to own a bit of farming zoned land just outside the city.
So I’ve got all these things that need doing, and all right now. I’ve kind of got it figured out, and I’m not sure there’s a better solution, but I’m not really happy with it either. I’d love to hear how other people juggle these things.
“If, like me, you left school long ago, what do you wish you had known about money? What knowledge would have helped you when you were starting out in life? If you could give your younger self just two or three pieces of financial advice, what would they be?”
The main one would be ” 10 % of all I earn is mine to keep” ( from the Richest Man in Babalon). Once I heard that I started an RRSP, as a single Parent, it gave me permision to keep some of what I earned. Silly, I just thought I had to look after my family ( no help from the ex.). I retired at 56. And now enjoy my home and gardens, with my dh. I also from the age of 37 started following other good practices, but I had never been one to finance things so didn’t have to worry about that. But I think oh, if I had started saving from my first job, I would be wealthy now. Yes I took Economics in University! And still this didn’t sink in.
@ Kelly
Read Get A Financial Life: Personal Finance in Your Twenties and Thirties by Beth Kobliner.
Amazon has it. I have recommended it to dozens of people and purchased a few copies for the public library. I only wish the book had been written when I was in my twenties and thirties.
All the best to you!
Hi,
I’m a college Junior and I currently go to a state school and have minimal debt (about $6,000). I was considering taking out a loan and studying abroad for a semester or just traveling for the summer. This will give me significantly more debt. I don’t really have much in the way of savings. Do you think the experience is worth it?