Three Things to Know About Your Finances after You Graduate

by Nicole Dugan Over the course of the next few months, a fresh crop of recent college graduates will be joining the workforce. I’ve been out of college for about five years and learned many lessons about budgeting, saving and investing that I wish I knew on graduation day. There’s some lessons that can only be learned from experience- like that first time you realize that you only have $200 in your checking account and pay-day isn’t for another week. In today’s economic environment characterized by high costs of living and stagnating salaries, being financially savvy is an absolute necessity. Here’s a few things I wish I knew on graduation day.

1) You don’t have as much time as you think you do

Retirement is far away, but not as far away as you think. Enjoying your 20s and taking time to adjust to life post-college is important, but not at the risk of coming up short in retirement. You’ve probably heard this before, but make sure you contribute to a 401k if your company offers one. At minimum, commit to contributing the amount needed to get your company to match your contribution (if available).

It’s also important to set savings goals for life events that may occur before retirement. These could be anything from buying a house to taking a much needed vacation. It’s important to sketch out a budget and try to follow it each month. Aim to save a certain amount each month; it’s ok if that amount isn’t attainable every single month- as long as you are making the effort to save most of the time.

Despite the distrust many of us may have in the stock market, it’s important to start investing. Whether you want to consult an advisor or do it yourself, there are numerous options out there to get started.

2) You’re salary will never go up as quickly as your rent does

When I first got my own place, the rent for a two-bedroom apartment in my area was between $2,000 and $2,600 dollars. If you were lucky, you might even be able to finda hidden gem that’s livable for under $2,000 per month. Now, in the same area, rents for a two-bedroom apartment range from $2,500 to $3,500. So if you’re planning to start saving when you get older and become more established in your career, think again. It’s very likely that a large chunk of any salary increases or promotions you receive will go towards keeping a roof over your head. According to MotherJones.com, since 1990, salaries have increased by 21% while the cost of living has increased by 67%.

3) Starting your own business is hard work

I gave a presentation to a group of college students in Florida a few months back. Some unexpected feedback-the majority of students are aspiring entrepreneurs. Gone are the days where academics dream of jobs on Wall Street- now the dream is to be your own boss and start your own company. I find it inspirational that so many young professionals have the drive and vision to become entrepreneurs. I view it as taking the world of business and industry back to its roots. Unfortunately, having a great idea isn’t always enough in today’s economy.

One thing to keep in mind, is that being an entrepreneur has the potential for great profit as well as great loss. In addition, you will probably need to be ok with not making any money for a while, maybe even a few years, while your business builds. Most small businesses need venture capital funding to get off the ground and start churning a profit. There are plenty of firms out there that invest in new businesses, but they, most likely, all want to see proof of concept before investing.

Making the transition from college life to living in the so called “real world” is tough- for me it was tougher than I imagined it would be. Being financially savvy is one thing that can make the transition a lot easier.

 

photo source: Grads Absorb the NewsKit from Pittsburgh, USA