If you're on the verge of graduating from college or you've recently graduated, congratulations! For many young adults, college graduation marks a major transition into adulthood and the world of post-graduate employment. However, a new phase of personal finance comes with that.
Though it's not true that every decision you make in your 20s will have lasting effects on the course of your adult life, there are some that have bigger implications than others. Many of the decisions you'll make will be primarily focused around your finances. As a free graduation gift, take in some of the best financial advice for new graduates out there.
While there is a lot of financial advice floating around, Deborah Fowles from The Balance gives some of the more useful and common-sense pieces of advice and, if followed, they won't steer you wrong.
Higher-Paying Jobs Aren't Always the Best
The average starting salary for the class of 2019 was $53,889, according to the National Association of College and Employers (NACE). The data for the class of 2020 has yet to be collected, as the coronavirus pandemic most likely had an impact on the resulting average salary. But either way, money doesn't necessarily equal greater job satisfaction.
If you've chosen your desired career path, remember that a lower-paying entry job in your desired field is likely to be a better deal in the long run than a higher-paying job in a field you have no long-term interest in. Taking a job in an unrelated field simply because it pays more can either delay your career progress or worse, trap you in an unhappy field of work.
Think Twice Before Moving in With Your Parents
52% of young adults (18- through 29-year-olds) lived with one or both of their parents, up from 47%. While this statistic is largely a result of the coronavirus pandemic, about half of new grads tend to move back home after graduation, often due to overwhelming student loan debt.
While in some cases moving in with your parents can give you a bit of a financial safety cushion, if possible, it's best to leave the nest after college and live either on your own or with roommates. It's difficult to move back home when you've been independent at college, and even though it might be a bit tough, you'll grow faster and learn more by being on your own.
More than likely, moving home can lead to a lack of spending discipline. Moving back home can work, if you are confident that you won’t fall into a spending trap.
Don't Buy a New Car
You may be tired of driving a clunker in college or having no car at all, but buying a brand new car is a costly mistake that could keep you on a tight budget for years. Instead, consider buying a car that's one-to-three-years old and you will most definitely save a great deal of cash.
You can get a car that looks like new for a lot less money, and instead save for another important purchase, like a down payment on a house.
Get Into the Budget Habit
Most Americans have no idea how much money they spent in the last month, according to a recent survey conducted by Intuit, with only 23% of Gen Z knowing what they'd spent, and 27% of Millennials knowing. If you're in that category, don't be discouraged by the idea of budgeting. Budgeting isn't simply an exercise of living within your means, but rather it's about being knowledgeable and prepared for a multitude of financial curve balls life throws at you.
Think of a budget as a spending plan to guide your spending and saving so you can have the things you really want. Try hard to avoid getting drawn into affording a certain lifestyle.
In addition to maintaining a budget, consider establishing an emergency fund. This amount of money that you set aside will be your safety net in case of unexpected financial trouble, such as a car accident or losing your job.
Start Saving and Investing Now
Half of Americans have less than $250 left over each month after accounting for their necessary expenses and regular spending, according to a new survey from The Balance, and 12% have nothing at all.
When you're creating your budget, be sure to integrate savings into your expense’s equation. This means expanding your emergency fund, saving up for larger future purchases, and yes, contributing to a retirement account.
If you're lucky enough to have access to an employer retirement plan like a 401(k), use it. If they offer some sort of contribution match, try to maximize it. If not, open an IRA for contributions. By starting to save for retirement in your 20s, you can positively impact your future financial security.
In addition to investing in retirement, consider allocating your funds in other investments. By starting early, you'll have more time to build a sizable nest egg.
Educate Yourself About Personal Finance
The best way to learn about personal finance basics is to find a financial expert that clicks with you and study their advice. Many financial experts offer instructional books, podcasts, YouTube videos, audiobooks, seminars, and other content focused on educating people about how to best manage their finances. One of these methods is hopefully a good way for you to learn. Then you can set yourself up for financial success.
