Today’s new college graduate has an amazing financial opportunity.
Did you hear that? That was the sound of the collective class of 2015 all scoffing at the same time.
Financial opportunity is not a term often used to describe the current situation of today’s American college graduate: saddled with more debt than ever, still scraping for jobs and a higher-than-they-would-like probability of moving back in with mom and dad after the cap and gown ceremony.
But truly, today’s graduate has the same opportunity that all grads of yore have had and that is the opportunity to get it right. The chance to start their financial habits on the right path, to avoid the regret, the ‘if only’ and the ‘I wish I had done things differently’.
Here are just a few of the financial principles that grads can practice to make the most of this once in a lifetime opportunity.
There is literally no reason to be an aimless saver.
Make sure that your goals are SMART. I’m not just talking intelligent, but rather Specific, Measurable, Attainable, Realistic and Time bound. Instead of saying, “I want to spend my money on experiences,” say “I am going to save $1,200 for a trip to Costa Rica in January of 2016 by putting away $60 every paycheck.”
Come up with a few short-term goals (traveling, a car, an emergency fund) and a few long-term goals (a wedding, a house, retirement). Creating a plan to achieve your goals transforms them from wishes to inevitabilities.
If nothing else, a college education should have taught you that debt is bad. Debt ties up your money in interest, money that should be working for you by growing and helping achieve goals.
Car loans, student loans, credit cards – pay them all off as quickly as you can and don’t take them out again.
The faster you get rid of debt, the less interest you will pay and the sooner you can put your money to more productive uses.
Save for Retirement Now Yesterday
You’re fresh out of college and it’s hard enough planning what you’re going to have for dinner, let alone how much money you might need in retirement. But the sooner you start saving, the more time your money has to grow and the more your money grows, the less work you’ll have to do to pay for retirement. Time truly is money.
Fortunately, employers usually make saving for retirement pretty easy to do without even thinking about it.
- Most employers have a 401k program that will let you contribute directly from your paycheck without you ever seeing the money. Out of sight, out of mind.
- Many employers will even reward you for contributing to retirement savings by matching your contributions up to a certain dollar amount or percentage, and that essentially is a pay raise.
Many college grads are burnt out after having worked hard in school for the past 16+ years. The term ‘financial planning’ reminds them of a class they avoided in college, a textbook they refused to purchase and a far too complicated concept that they are not ready to tackle.
Financial planning is an ongoing process. You have to revisit your plan often and make changes to it as you encounter unexpected (and expected) life events. You do not need to plan the rest of your life today, but you do need to start somewhere. Making goals, reducing debt and opening a retirement savings account will create a basic foundation for you to build from.