Either way, today we begin our “Now What?" series, but I need to mention something before we get started. This series is only being broken down into five stereotypical (almost Utopian) life stages as a way for us to outline a suggested financial plan for a lifetime in bite-sized chunks. For example, this post is not just for college graduates; this post is primarily for young people, ranging from high school graduates to people who are relatively new in the workforce, but it can be a good refresher for everyone. Now that we’ve hopefully got that cleared up, let’s go back to that car ride home with the family after college graduation…
Go ahead and enjoy that celebratory lunch, take a few days off, and savor all the cards (and checks) you will probably get in the mail. Graduating from college is a huge accomplishment, but I need to burst your bubble with one of the lessons that hit me hardest right out of school: You have a lot left to learn. I had a master’s degree, I graduated with honors (lowest honors, but still honors!), and I had even passed portions of the CPA Exam, but I quickly realized I had a lot left to learn. I remember sitting at my desk at my first, real, full-time job realizing I had an impressive college pedigree, but somehow at the same time, I knew “diddly-squat.” The real world doesn’t let you go out on Thursday nights, take naps between meetings, or care about your GPA. The real world plays by a different set of rules, and your finances need to adjust accordingly. Here are some suggestions:
- Do something. Whether you’ve graduated recently, have decided to try to change jobs, or have been forced to change jobs in recent years, you know how tough the job market has been. This is why I say “Do something” as opposed to “Get a job.” Doing something includes interviewing for a job like you’ve always wanted, going after a job that’s close to what you’ve always wanted or that could help you springboard into the job you’ve always wanted, getting an internship in the field you want to eventually work in, and even volunteering in any capacity you can find in your area of interest. If you exhaust all those opportunities, maybe consider going back to school to further your training or taking a different type of job. I believe many members of older generations would agree to some degree with the statement I’m about to make: A job is a job. Do something; don’t sit and wait on life, or it will pass you by.
- Start saving. The Bank of Mom and Dad is about to close if it hasn’t already, but don’t fret, this is a once-in-a-lifetime opportunity. You can start living within your means now and likely avoid many of the financial problems that plague others. By that, I mean if you start earning a salary and immediately start saving 10% of it, donating or tithing 10% of it (if you choose to), and investing 10% of it, you will not feel like you are sacrificing anything. That 70% of your remaining salary (100% - 10% saving, 10% donating, and 10% investing) should be relatively easy to live off of as it is probably more money than you have ever earned anyway! When you get that next raise or bonus, keep the same percentages and you won’t even notice you’re saving, donating, and investing more; you’ll just feel like you’re earning more. My theoretical percentages aside, I’d try to save up at least $10,000 cash in a rainy day fund right off the bat.
- Start investing. As I alluded to above, start investing. Many financial planners and wealth advisors have different theories on what you should do, but my personal recommendation would be to start maximizing Roth IRA contributions ($5,000 per year) and setting your contributions to your employer’s 401(k) or retirement plan to at least whatever it takes to get the maximum match amount. Remember that it’s important to invest sooner rather than later as $1,000 invested at age 18 averaging a 5% return per year would equal $6,081 at age 55, whereas, $1,000 invested at age 25 with the same average return per year would only equal $4,322 at age 55. The longer your investments can compound and grow, the sooner you can retire in style!
- Fight off debt. If you have student loans, now is the time to lay waste to them. You do not want these hanging over your head any longer than you have to. Don’t nix your savings or investing plan, just try to live a little leaner so you can start making significant progress towards extinguishing your debts. Also, for no reason short of an alien invasion or maybe blowing out your car’s engine should you start carrying credit card debt! Pay it off every month, no excuses. The interest rate is simply not worth it!
- Make a budget. One of the most amazing things I have realized as a financial planner is that no matter how much money you have, you can get in financial trouble pretty quickly if you spend beyond your means. Don’t adopt the approach that you will pay for everything and save what is left. Save some receipts and bills for a few months and figure out what you can save, donate, invest, and put towards debt first and still have enough left to live reasonably. Remember, you’re not in college anymore - large expenditures for Dixie Cups, grass skirts, and 24-packs of corn dogs (they were good) should not be the norm.
Congratulations again on graduating from college. I hope, and believe, these suggestions will help get your adult life jump-started. Don’t get me wrong, the world is still your oyster; you are just going to have to earn it!