7 Things We Wish We Knew About Money Before Leaving the Nest
It’s graduation season! For some, it’s a joyful time and for others it’s bittersweet or even frightening. The difference between those groups tends to be how prepared the graduate feels to enter “the real world.” There are a few skills our resident millennials Jennifer Davis, CFP® and Carla LaFleur recommend for this year’s batch of graduates—so if you have a new grad at home, or you know of someone who does, pass this article along!
This will make life after college so much easier on an entry level salary! Living within your means from the start means you will be able to save, and feel more secure if an unexpected emergency occurs.
- Learn to cook as opposed to going out for all your meals.
- Acquire a wardrobe that serves you for all kinds of different situations without having to buy new things all the time. Clothes shopping is simple to save on if you can be disciplined and buy during sales.
- Learn how to live with roommates and not kill each other
- Find what makes you happy (hopefully you’re not like me and it’s not something expensive like horseback riding)
Know what you need to pay for.
When I graduated college, it seemed like the majority of my friends either lived at home, or at a minimum, stayed on their parents’ cell phone plans. For better or for worse, it’s a cultural trend: according to Pew Research Center, 61% of adults aged 40 to 59 with at least one grown child said they had given financial support to an adult son or daughter in the prior year. Setting parameters on what you are expected to pay, especially if living with parents, avoids misunderstandings and can help put adult children on the path to independence. A few items to think about:
- Cell phone plan
- Gym membership
- Insurance coverage: Renter’s insurance, health, dental, auto. (Some universities will give an auto insurance discount for alumni. Be sure to ask your insurance provider if your alma mater is one of them.)
Make your own appointments.
Luckily, even if you don’t have a job straight out of college, young adults can stay on their parents’ health insurance plan until age 26. But don’t make your parents schedule your appointments for you, whether it’s medical or otherwise! Learn how to log in to find in-network providers online, and enjoy the freedom of choice to pick whichever professionals you want, from car mechanics to hair stylists.
Seek your own experts.
When I got my first job, I did know enough to immediately sign up for the 401(k) and save enough to get the company match. I asked my mom for advice on what funds to choose, and I let it sit for a while. But after a few months on the job, I decided to review what funds I had chosen and how they were doing. My 401(k) was almost 100% in safe, secure government bonds...earning just fractions of a penny on each dollar I had invested!
She meant well of course and wanted my money to be safe, but it serves me right for “hiring” a pharmacist to give me investment advice! You may have a family member who also wants to give you investment advice…but make sure you check with an outside source to find out whether the advice is a good idea for you personally.
Save, save, save and “be your own bank.”
Your financial goals when you get a job should be:
- Cover rent and expenses
- Save for an emergency fund that covers about 3 months of your expenses. Keep this in a savings account, and use it when your car breaks down, your apartment sink explodes, etc. (Not for fun things like trips. Any excess above the amount of your 3 month expenses can be used for fun stuff!)
- Use your credit card to build a credit history, not to build debt. Always pay off the balance each month. If you’re not sure which credit card to choose, cashback cards that allow you to receive 1% or 2% back on your purchases are a smart move. Some even allow you to deposit cashback rewards automatically in your investment account.
- Pay off high-interest debt as soon as possible.
- Begin investing for retirement.
- Save for gifts a tiny amount each month. This makes the holidays WAY easier!
Don’t try to keep up with the Joneses.
There is no shame in offering an alternative plan if your friends keep inviting you to expensive nights on the town. There is just as much fun to be had with a party at home, and in all likelihood your friends will appreciate you saving them money. If they give you a hard time, just remember: you should only worry about what your friends think about your spending when they are paying your bills!
Invest now or pay later.
Many people think that they don’t have enough money to save and invest. But even waiting just a few years to begin investing can mean a difference of hundreds of thousands of dollars because of the power of compounding (earning interest on interest).
Set up your saving and investments so it happens automatically each month, and the temptation to spend on other things will be out of sight and out of mind.
A few automated money tools for recent grads:
- Mint.com: budgeting, auto bill pay, view of your entire financial life
- Level Money: budgeting app that calculates how much you can spend per day
- Digit, SmartyPig: Apps that trick you into saving
- A list of high-yield online savings accounts
At Halpern Financial we are happy to help our clients’ children learn how to fly as they leave the nest. Just give us a call with any financial questions your new grad may have.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Halpern Financial, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Halpern Financial, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Halpern Financial, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Halpern Financial, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.