8 Tips for College Graduates: Live Like You’re Poor and Take Care of the Important Stuff
I work at my alma mater and feel so fortunate to be allowed to work with students through their four-year journeys.
After four years of intensive shaping by their experiences, professors, internships, jobs, and friends, it’s amazing to see what these young people have become. Their four years really do carve them into polished individuals, and I love seeing that process unfold.
Do you want to know what the coolest thing about graduation is? Once the last strains of “Pomp and Circumstance” fade away, these youngsters or college graduates get to start their lives at the beginning. It’s kind of like being reborn. Gosh, the possibilities!
I love it. I wish I could start all over again. (I’ve definitely had that thought more than once.)
I did a crash course online of researching what I thought would be important things for college graduates to know financially, and what would help them out the most, immediately post-graduation, and here’s what I came up with:
1. Make a list of your financial goals.
I tell my daughter all the time, “You gotta have a plan, man!” (She’s only four, so her goals are more aligned with bargaining for as many scoops of frozen yogurt she can get in one sitting.)
However, you really gotta have a plan. What are your dreams financially over the course of ten years? Maybe you’d like to buy a house. Maybe you’d like to get married. Maybe you’d like to pay off all your student loans early. (Good plan!)
2. Break bad financial habits now.
Do you swipe plastic everywhere you go? Go out to eat all the time, even though you can’t necessarily afford it? Buy stuff you don’t really need? Make sure you know what a budget is and stick to it as much as possible. I know, I sound like your mother, but man, oh, man, will you thank yourself later.
3. Deal with your student loans.
Quickly, I say, as quickly as possible! I really do believe that you should pay student loans off as soon as you can. I know that some people just love to eke those out over time-citing the fact that their interest rate is low.
“I can make more money investing at a higher return rate because my student loan interest rate is super-low,” one of my friends said after graduation. Sure, thing. But I’ve also seen those student loans limp and limp and limp along until people are 40.
Make a concentrated effort to add extra pennies to get rid of them, once and for all. Student loan debt is still debt.
Not good debt, not bad debt, just debt.
4. Get out of all debt, for that matter.
Got credit card debt from that crazy spring break trip to Vegas? Yeah, some of us have been there, done that. With every fiber of your being and every single extra penny, you have to spare, get rid of that debt.
Pay off your balances using the debt snowball or debt avalanche methods for erasing the debt. You can also Google both premises to see if you think they’d work for you.
5. Invest in your retirement.
Assuming you’ve interviewed, accepted, and your brand new corner cube is now decorated to fit your taste (and your company’s limits) it’s time to think about retirement.
Yes, seriously. March yourself to your HR office.
Make sure you’ve got the company match. Make sure you are investing at least 10 percent of your pretax income toward your retirement. If you need help selecting funds, do it.
Don’t think about it. Don’t lament the “missing money.” Just do it. You have time on your side.
If you need some motivation, check out this chart about compounding interest and how much money you just might have at the end of the career if you do yourself this one favor and start saving for retirement:
$100/month with 12% annual growth
|5 years||$8, 167||30 years||$349, 496|
|10 years||$23, 004||35 years||$643, 096|
|15 years||$49, 958||40 years||$1, 176, 477|
|20 years||$98, 926||45 years||$2, 145, 469|
|25 years||$187, 885||50 years||$3, 905, 864|
Good Lord, if only I had been shown that chart when I was 22….
6. Start investing as soon as you can.
Refer to the chart above. Compound interest means that the interest you earn each year on your investments is added to your principal, so your money grows at an increasing rate.
Time is on your side.
Most college graduates have no idea how much more money they’ll wind up with if they invest the day they start their first jobs.
7. Buy yourself something to live in.
Homeowners build wealth. Renters stay poor. If you buy your home with quite a bit of a down payment (and especially if you decide to go with a 15-year fixed mortgage on top of that) you’re in a whole heck of a better position than someone who’s renting long-term.
It’s simply the truth: How are you not building wealth if you’re using your home as a savings vehicle?
Now, I understand that that’s kind of a chunk to swallow for someone who’s just graduated from college-gotta have a down payment first! But for some special college graduates who already have money in the bank, buying a house and renting a room out of the house for a friend may just be the ticket. Or consider buying a duplex, becoming a landlord, and renting the other half out while you live on one side. The possibilities are endless!
8. Live like you’re poor.
I love this tip because it’s so perfect for college graduates and students.
You know how to live poor-you’ve already done it for four (or six, for some!) years. I really hate it when students find out what their salaries are, whoop with joy, and go out and buy a Camaro. One of my former students from last year actually did just do that.
Imagine if you did this instead:
- Continued to drive the beater you’ve been clunking down the highway with for years-it’s still got some life left in it, right?
- Only bought what you need, not what you want.
- Saved every penny you had.
- Now, tip #6 doesn’t seem so far out of the realm of possibility, right?
- It’d be amazing what you could do with $5,000.
I’ll never forget my very first day of work at a magazine publishing company. One of my co-workers, actually a wonderful lady, said in mock warning,
And for College graduates “Today is the first day of the rest of your life.”
Wow. Wow. So true. Make it count!