Change the world. Find your passion. Make a difference. The number of cliché phrases used as words of advice in commencement speeches would provide for a pretty great drinking game…which I’m sure already exists (à la, drink every time you hear a cliché). The truth is that yes, all of those encouraging words are inspiring, but there is no actionable first step for a graduate to take to accomplish those things. Life is complicated and there are far too many words of advice to fit into a blog post.
One of the areas in a graduate’s life that can be the most confusing is finances. So while we can’t help you or your grad “reach for the stars” or find the “road to success” on a map, here are some quick tips to help 2016 grads get started on the right path financially.
Tackle debt head on
There is no greater financial burden to a graduate in 2016 than their student loans and credit cards. The average graduate this year will owe about $35,000 in student loans and $3,000 in credit card debt. Get those credit cards paid off as quickly as possible using Dave Ramsey’s snowball method, and then start making extra payments to those student loans. Get it all out of your life as fast as you possibly can!
Don’t fixate on salary
Understand that a job is about far more than salary, especially in 2016. Now that millennials have become the largest generational group in the workforce, employers are changing the way they approach culture and benefits. Healthcare costs are rising and an employer that offers a Health Savings Account (HSA) with their group plan should really grab your attention. Financial wellness is huge for young workers as well and voluntary benefits that help workers with their financial lives are worth far more than you may realize right now. Consider voluntary benefits and salary as just two pieces of an overall compensation package. And of course, don’t expect to find that perfect job right out of school. It takes time and different experiences to really find what you love. Don’t beat yourself up if you haven’t found your passion by 25.
Automate your finances
One of the best habits to get into right out of the gate is to always pay yourself first. The first paycheck you get is likely going to be the largest you’ve seen yet. Teach yourself right then and there that 10% of it is going right back to yourself, no questions asked. There are several ways to do this automatically. First of all, make sure that as soon as you are eligible to participate in your 401(k) or 403(b) plan at work, you are contributing the full amount that your employer will match. For example, if your employer matches 50% of every dollar up to 4% of your salary, contribute 4%. That match is free money that you are just throwing away otherwise. And when it comes to selecting the investments in your 401(k) or 403(b), that’s where blooom comes in to automate the entire process for you.
The other 6% (of the 10% you pay yourself first) should be used to build up an emergency fund equal to about 3 months of your expenses. Obviously, it can take some time to figure out exactly what your monthly expenses are going to be right off the bat, but shoot for somewhere around $5,000 as a good cushion. You can set up a direct deposit right into a savings account at an online, FDIC insured bank that offers far higher interest rates than the old school banks do. The key thing is to treat this like it’s money that truly is NOT to be touched unless there is a real emergency, like losing your job.
Once you have a good cushion in the emergency fund, throw even more onto your remaining debt. Then start slowly increasing your 401(k) contributions. An easy way to do this without impacting your budget significantly, is to increase your contributions by 1% every 6 months or 2% each year. Before you know it you’ll be in better shape than most people twice your age! If you’re lucky enough to graduate debt-free or are able to quickly payoff all your debt, start investing! You can use an app like Acorns to automatically make small investments that can seriously add up over time. It can be a great way to set aside money for fun trips or events. And the other great thing is, you don’t have to pick the investments, just let them know what kind of a goal you’re saving for and the amount of risk you’re comfortable with. Their algorithm will take it from there.
While saving and investing for your retirement years is something we literally live by here at blooom, it’s hard for young people to even think about doing so, if they don’t have a handle on the rest of their financial lives. Online tools like Mint are great for organizing your entire financial life and budgeting in one place. You can also automate all of your bills using their Bill Pay tool.
There are plenty of things racing through the mind of a college graduate, but few things are more important to long-term success than understanding money. It’s a crazy, confusing, and exciting world out there after college, but time flies faster every year from here on. Get your financial life in order from the start and enjoy every experience life throws your way.
On behalf of the entire team here at blooom, a huge Congratulations to the class of 2016!