The Graduates Guide to Finances

Almost two million students will graduate from college this year. These young men and women will be starting a new chapter in their lives, looking for a job, starting on a career path, and managing their finances.

It should be no surprise that those with an advanced degree make significantly more money over their lifetimes than their counterparts with an undergraduate education or only a high school diploma. Yet they still have concerns about their financial future, says a report by the Council of Graduate Students. The majority of these graduates say they feel stressed about their personal finances and dissatisfied with their current financial situation.

Unfortunately, college students are not well prepared for the real world, financially speaking.

The basic concepts of finances are not taught in most schools, so while they may have a master’s or a Ph.D. in their chosen field, they lack basic financial literacy, and their low financial IQ is hurting them. 

Starting out can be very stressful. Faced with student debt, rent, and other bills it’s easy to get tunnel vision and focus on immediate survival rather than long-term financial stability and success.

One of the smartest things a graduate could do to ensure a bright future is to invest some time and energy into becoming more financially savvy. The earlier one starts, the easier it is to reach those goals of financial stability and success. Set good financial habits right from the start, like sound investments and avoiding the trap of debt and high-interest rates.

Start Saving Early

Pay yourself first. Getting that first paycheck can be exciting, and it’s very tempting to go out and spend it all. However, if you work with a budget and put 10 percent into savings from day one, you will instill a sound financial habit that will pay off handsomely.  

Emergency Fund

Very few Americans have an emergency fund.  If they were to be hit with a large medical bill or car repair, they’d have to go into debt to pay for it. Aim for six months’ expenses in your savings account, so that if you were injured or you lost your job, you’d be able to survive.

Retirement Planning

It may seem very far away, but now is the time to start your retirement fund. You have the luxury of time. If you have a job that offers a 401k, contribute enough to get the maximum employer match. If not, start your own IRA.

[1] The average salary for a college graduate in 2019 is $48,000 a year. At that salary, you will be paying 22 percent tax. Talk to an accountant or financial advisor, and find out what deductions are allowed. One of them will be contributing to a 401K or an IRA.  So you win both ways – the contributions are deducted from your taxable earnings, and you are saving for your future.

Almost half of the American workforce have nothing saved for their retirement. Don’t join that group. Start now and provide for a comfortable retirement.

Student Loans

Americans are saddled with student loan debt ($1.3 trillion, according to the latest statistics, which means on average graduates owe over $37,000 in student debt). 42 percent of Millennial employees have student loans, and almost 80 percent of them say that the debt and the pressure of repayments have a moderate or a significant impact on their ability to meet their other financial goals, such as buying a house. Pay the loans with the highest interest rate first.

Credit

Credit cards can get out of hand very quickly. Then you’re on the never-ending payment and interest cycle. Before you buy on credit, find out just how much you’ll end up paying if you only pay the minimum payment each month. You’ll be shocked at how much more you end up owing.

Learn how your credit score works, what improves it, and what makes it worse.

Once you’ve graduated, one phase is over, but another begins. You’re just starting out on the road of life, and these lessons can help make it a smooth transition.

Money, Stress, and Your Health

Money problems are keeping Millennials up at night and affecting their emotional and physical well-being.

50 percent of Americans between the ages of 25 and 34 said worrying about finances negatively affects their health. It is not just making them physically ill, but it is ruining relationships as well. 53 percent of the same group said money worries have a negative effect on their marriage or partnership – just over half of Americans in a serious relationship say that they fight about money.

As this year’s crop of graduates move into the working world and find their financial feet, they have the added pressure of the new wave of media and social media. Almost 60 percent of investors under the age of 35 said that when they see images of exaggerated wealth on social media and television, it makes them feel less successful.

There certainly is a disconnect between the generations, and it seems like the new kids on the block are not having an easy time.

Hopefully, they will forge a brave new path in the world. To do that they will have to solve their emotional attachment to perceived success, increase their financial literacy and IQ, and make smart money decisions that will provide their own future success.

 

IMPORTANT DISCLOSURES

 

 

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

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Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC