7 a.m. and me do not get along. We are not friends and never will be. But because I love my family so much I happily greeted the world at that hour two weekends ago. It helped that I was in a hotel room in Orlando when I had to get up that early. I do not sleep well in hotel rooms, or any other place that isn’t my own bed. I’m pretty sure the fact that you can set up the coffee machine right next to the bed in hotel rooms helped too!
But I digress. The reason I was up so early was because my husband’s youngest sister was graduating from college that morning. Mr. Patterson and I along with his parents, my sister-in-law and brother-in-law all put on our Sunday best and drove over to the University of Central Florida to witness the youngest of the Patterson spawn walk across the stage, receive her diploma and throw her cap up into the air.
The ceremony was inspiring and the rest of the day was wonderful as we went out to brunch together and walked around downtown Orlando (if the opportunity arises I recommend going, the city is beautiful). At dinner that night hubby asked the new college grad what her plans were for the future. Did she plan to stay in Orlando or move back home? What industry did she want to get a job in?
Megan responded she wanted to ultimately stay in Orlando and get a job in sports marketing, but what she was actually going to do was move back home to her parents’ house while looking for any available job she could get. I smiled at her statement and inwardly I rejoiced. No, I’m not cold-hearted or mean spirited. I want her to get everything she dreams about. I’m just happy that she’s smart enough to realize that it’s better financially for her to live at home while looking for a job so she doesn’t go into debt.
Every year this month hordes of college graduates are released into the real world. Despite having degrees under their belt most of them have never balanced a check book or paid a credit card bill in their life. Except now all of a sudden we expect them to automatically know all about 401(k)’s and credit reports and debt loads. It’s pretty unrealistic.
I think that must be why so many young people get into financial trouble. In addition to learning the in’s and out’s of the real world, they are also learning to navigate a pretty tricky financial realm. I hope Megan is prepared for it. She’s got a sister-in-law who is pretty great at it, but that doesn’t mean she’ll follow my advice. Most young kids loathe older folks telling them how to do something; they want to figure it out on their own. But if she were to listen to me I’d tell her and any other recent college grad this…
Pull your credit report immediately upon graduating.
I just read a report that says nearly fifty percent of employers use credit scores in determining who to hire. That’s in addition to landlords, banks, cell phone and insurance companies. Each of these use your credit report to see how financially responsible you’ve been in your past. If you have bad credit, you’re going to find it hard to get a job, a cell phone, a mortgage, or an apartment. Find out your credit score before they do. That way if you have some dings in it you’ll have a head start on repairing your credit. Go to annualcreditreport.com to get a free copy of your credit report.
Make repaying your student loan a priority.
One of the items that will be listed on your credit report will be your student loans. Avoid sticker shock by inquiring with your loan servicer how much your total debt is and how much your monthly payments will be.
You might find that the repayment plan your loan servicer placed you on is unmanageable. Federally guaranteed loans automatically place you on a ten year repayment plan. If your loan amount is high, your monthly payment might be more than you can handle. In this instance it would be beneficial for you to switch your repayment plan to an extended version. This will lower your monthly payment and keep you from defaulting.
You might also find that you can save yourself a ton of money if you consolidate several of your loans into one. This will reduce the amount of loans you pay towards each month as well as save you a ton of cash in interest payments.
It’s important to make repaying these loans a priority. The only thing that takes precedent is credit card debt. Those bills should be paid off as quickly as possible because credit card companies charge you a higher interest rate than student loans.
Go easy on the credit cards.
What I really want to say is beware of credit cards all together, but for those that can handle them they can be a great tool to help build a solid credit history.
College grads have a whole slew of new expenses to pay for: rent, utilities, work appropriate clothing, insurance, student loans, furniture, etc. It can be hard to afford all that and still have money left over to go out with friends on a first job out of college salary. It’s tempting to put it all on a credit card and only deal with the payment situation once a month when the bill arrives in the mail. This is why I caution against credit cards for youngsters.
Like I said before though, they can be a great tool to start building your credit profile. You may have been an authorized user on your mom or dad’s card or had them co-sign a card with you. If so it’s time to get your own account. Use the card for small purchases and pay off the bill as soon as you get it. Don’t wait until it’s due. Within six months you’ll have built a credit history that can be useful to landlords, insurance companies, banks and hiring managers.
Just don’t go overboard. Getting four credit cards and making purchases with them each month will not build your credit profile any quicker. Instead only get one card and don’t worry if it has a low balance. For now just view it as a tool to improving your credit score, not as a means to fund your lifestyle.
Enroll in a 401(k) as soon as your new job allows you.
I didn’t start my first 401(k) account till I got to my second job after college. I get so angry at myself when I think of all the time I wasted not saving for retirement right out of the gate.
This is one of the most important lessons I would wish I would have listened to when I was younger. All I have to do is look at a chart that shows the magic of compounding interest to understand why. Investing early really pays off down the line.
If you contribute $2,400 per year starting at age 25 years to a retirement plan and that money earns an average annual return of eight percent, it will grow to $446,645 by the time you are 60. If you wait till you are 35 to start contributing, you’ll accumulate only $189,491 by the time you turn 60 years old. That’s only 42 percent of what you could have saved.
Starting early is what makes all the difference. No matter how little you contribute each year.
Build an emergency fund.
When talking about all these initial expenses, it’s hard to think about setting money aside in an emergency fund. It can seem like there is never enough money for all the things you want to do. But it’s so important in this new economy to have enough cash on hand to cover at least a couple months’ worth of expenses. Jobs are less stable than they’ve been in the past and the need to have savings to supplement an unemployment check has to be prepared for. It can also help avoid tapping into credit cards any time money is short.
Start a savings account for the things you don’t yet want.
Now that I have a house, an SUV, and a family I think back to all the things I spent my money on so frivolously in my younger years-trendy clothes, shoes I could only walk in for ten minutes at a time, movies I never watched more than once, the latest and greatest cell phone, and all those electronics. Ugh.
I have always wished I could go back in time and tell my younger self to save more of that cash for the big things in life- a house, a new car, my family. When you’re graduating college it’s hard to imagine those things. You don’t really want them yet (except for the new car).
Except when I wanted them a few years later, I didn’t have the money for them. That’s why it’s always good to save for those things in advance. Your 20’s and 30’s will include a lot of big life events that you’ll want to have enough money for.
Don’t buy a new car.
This is one of those things that nearly all college graduates want as soon as they get their first paycheck. They want a shiny, new, sophisticated car to match their upward mobility in society.
The problem isn’t the car loan itself, but the fact that adding another new expense to your meager budget can really strain you. It’s better to keep what you have or buy a used car with a large down payment to keep the monthly payments low, until your job and income are more stable.
Please pass this advice on to any newly minted college grad. Let’s build a generation of financially smart youngsters that don’t have to learn the hard way. Not only will they be better off, but so will we. After all these are the kids who are going to be taking care of us in our old age.
Keeping Money in Your Pocket,
Nancy Patterson
