5 Thoughts on New Grads and Money

Entering the world of adult finance is hard. This will help.

Every May, a brand-new crop of young adults walks across decorated stages to receive their diplomas and enter the working world.

Most do it with a mix of exhilaration, pride, gratitude, and sheer terror.

The good news is that Class of 2019 is graduating to low unemployment rates (lowest they’ve been since 1969!) Still, transition into “full adulthood” can be bumpy. Every generation makes mistakes on their way to learning the ropes and figuring out careers, money, lifestyle choices, and long-term goals — and this year’s graduates will be no different.

For some, the big lesson will show up as $2,000 in tow and impound fees for failing to figure out parking restrictions in the neighborhood. For others, it will be having electrical service turned off (paying bills is important), overdrawing their checking accounts (budgets matter), or looking back 10 years from now to realize they’ve missed out on thousands of dollars in employer-sponsored contributions to a 401(k).

Here are 5 pieces of advice that I wish I could post on a billboard big enough for every new grad to see.

Expect that finding a job may be hard

Yes, unemployment numbers are low. Yes, you may be graduating with a sky-high GPA, a binder full of recommendations and awards, and big aspirations.

And yet, landing that first job may take several months. Competition for entry-level positions is fierce. Many new grads like you will be looking at unpaid internships or “tryout” openings to get their foot in the door.

Of course, your mileage may vary depending on your degree, location, the nature of work you are looking for, and your willingness to take a less-than-perfect opportunity. Sometimes you get the job you love. Sometimes, you do what you have to in order to pay the bills. This may be your first true test of reconciling your dreams with the reality of making a living. Expect it to be at least a little bit uncomfortable.

Follow some kind of a budget

Budgets are not sexy. Tracking expenses, saying “no” to fun nights out with friends — those financially-responsible choices look boring and restrictive.

It’s true that you can start out without any budget at all — but the truth is, you will inevitably bump into the limitations of your bank account. Ignoring the realness of “money in” vs. “money out” math is a bit like fighting against gravity. When you hit the ground, it will be a rude awakening.

So, start with a rough budget. It doesn’t have to be detailed or beautiful. However, having a sense for what it costs to live your current lifestyle (and how much money is in your bank account at any given time) will save you a lot of trouble.

Once you get that job, take the 401(k) match

Many new grads are unpleasantly surprised when they see a big chunk of their paycheck go to state and federal taxes, health insurance, group life insurance, etc. And so, they see 401(k) contributions as yet another bite out of their take-home pay — which leads them to opt out.

I wish everyone would understand the magic of compound interest, combined with employer-sponsored contributions! To say nothing of the fact that a 401(k) match is a critical part of your overall compensation package. When you opt out of that program, you are leaving money on the table.

Only use the credit you can’t do without

Oh, the siren call of shiny new credit cards. No fees or interest for the first 6 months, high credit limits… Combine that with pictures of smiling friends sipping cocktails on a deck of a cruise ship (“I deserve a vacation!”) or a semi-annual sale at a favorite store (“But those are all such amazing deals!”), and you’ve got the beginnings of a big problem.

Repeat after me, “Credit cards are for emergencies — not for fun”.

Those initial contract terms aren’t built to give you a break. It’s not the credit card company’s way of looking out for your benefit or doing you a favor. This is a hook that will bleed you out for years — if you are not careful. Some credit use is helpful for building a credit history, but you must do this strategically. Whims and emotional shopping will do more harm than good.

Build an emergency savings account

Finally, figure out your plan to build an emergency savings account. Without a cushion of just-in-case money, unpleasant realities of post-school life will rock your checking account and leave you at the mercy of those credit cards. A $300 car tow, an $800 co-pay for two tooth fillings and a crown, or suddenly finding out that you owe more federal taxes — all those discoveries land softer when you can lean on emergency savings.

One tip: If your student loan program allows you a post-graduation grace period (often about 6 months of not having to start repayments on the loan), here is a good way to take advantage of it. If your monthly student loan payment would be $280, put that money into emergency savings for the entire grace period. At the end of 6 months, you will have $1,680 in your savings account. That’s not a bad start!

financial planning, budgeting
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