Congratulations graduates. It’s exciting as you’re about to embark on new journeys and blaze individual paths into the world. Yet maybe it’s a time of uncertainty. What are you going to do with your life, where are doing it, and who will you be doing life with? Three big questions, but you’ll figure things out. You’ve learned how to learn, and life now shifts to choosing what you’re going to learn. Meanwhile, here are six smart financial moves for graduates.
- Use your time wisely – Job prospects are strong. Take your time and pursue the right opportunities. Most employees want honesty and marketability. The better long-term career investments are often jobs that develop your skills and expand your network.
- Start saving early – Here’s a test question. You’re offered a choice (a) $1 million in cash now, or (b) magical penny that doubles in value daily for 31 days. Take the magic penny! It’s boring for a while (1 penny turns to 2, 4, 8, and so on), but things get exciting. End of week 1 you have $1, week 2 is $100, and week 3 is $10,000. You hit $10.7 million on the 31st day! Compound interest is a powerful principal. Consistency and time matter. Save and invest X dollars monthly (401k and personal investments) towards your goal – newer vehicle, fund college or trade school, or retire on your terms.
- Build cash reserves – Most Americans have less than $1,000 in bank savings. It’s wise to have three to six months’ living expenses socked away in an interest-bearing money market for emergencies, reserves and flexibility. You’ll have more flexibility and less stress – move apartments, switch jobs, or pay a surprise bill.
- Stick to your spending plan – A ton of money will pass through your fingers in lifetime earnings over the next forty-some years work. Ignoring inflation, Average Joe earns $35,000 annually, or $1.4 million over forty years, and $100,000 a year is $4 million lifetime. How much of that will you save? Most don’t save enough. Schwab’s 2018 Modern Wealth Study reports that three in five Americans live paycheck to paycheck and only one in four have written financial plans. Affluent people spend less than they make, know what they spend, and budget money to save to maintain their future lifestyle and minimize “surprises.”
- Manage debt – Goals are to eliminate debt (pay off student loan or credit cards), or use wisely for major purchases (cars and house). Rising rates or poor credit rating mean more expensive debt. If you’re buying a vehicle, consider the savings of new versus used, and refrain from buying the “extras.” Say you’re comparing a $20,000 used vehicle at 6% interest for 36 months versus $30,000 new vehicle at 4% for 72 months. Used vehicle may sound expensive ($608 monthly payment versus $469). However, the new vehicle means monthly payments twice as long, spending $10,000 more in price and twice as much interest expense.
- Protect yourself – Boarders and cyclists wear helmets. Protecting your financial health is also important. Review and enroll in health and disability insurance (and life if needed) as appropriate possibly via your employer. Review your estate plan and beneficiary designations (life insurance and retirement plans) as needed. And periodically shop your car and homeowner’s insurance to save money and make sure you’re adequately covered.
Celebrate graduation with your family and friends. There may be some lingering worries “What am I going to be when I grow up?” Take a deep breath. You may be feeling a little intense right now. The world changes. There are careers today that didn’t exist ten years ago – AI Engineer, Digital Marketing Specialist, Telemedicine Physician, or Uber Driver. And there will be new advancements in the future. If that didn’t help, remember back to your childhood when you first pedaled your bicycle on your own – without your mother or father running alongside holding your seat. Overwhelming feelings of freedom… and fear? Do the same today as you did back then – keep pedaling. Congratulations and good luck!