Category Archives: Financial Planning

An Open Letter to New College Graduates

Financial Advice Beyond the College Dormitory

Congratulations! You’ve already heard that from family and friends, but after years of college you deserve it. Let’s also give your support team a well-earned round of applause; Well done, Mom and Dad!

Giving advice to a recent graduate always makes me think of one of the most memorable scenes from the 1967 classic film, The Graduate. Ben, an oblivious recent college grad played by Dustin Hoffman, is offered advice: “I just want to say one word to you, just one word. Are you listening?” family friend Mr. McGuire asks him before following up with “Plastics.” In the film, Ben is smart but unmotivated and lacking direction. Most graduates are not like Ben, but transitioning from school to career can still be a daunting task.

You’ve just graduated from college…what is your next move?

You are graduating into one of the best job markets in years. Be thankful for that.

Here are some steps can that help you transition from cramming for exams to embracing the new challenges that lie ahead.

Social and business networking

 You may have a job lined up, but perhaps you are still looking for the perfect position. You may be staying in or around your home town or you may be headed to a new location. It’s both exciting and a little frightening.

 Whether you will remain in close contact with familiar faces or not, it’s time to meet new people and make new contacts. Being in the community and connecting with new folks will go a long way to help ease the pressure and loneliness of your new environment. New friends not only allow for a robust social life, but these contacts may lead to new business opportunities, now or in the future.

Be careful though, to not go into every new introduction thinking, “What can he or she do for me?” You will be perceived as disingenuous and once you make a poor first impression, it is difficult to build a productive connection. Instead, build relationships. That’s “business-speak” for making genuine friends, a skill you already mastered in college!

 Campus housing is no longer an option

You may choose to move back home, but if you do, please consider paying rent. Doing so sends two important messages to your parents. First, you are living there as an adult who understands responsibility. Second, while you appreciate your parents support and guidance, it would be better for everyone if they held their opinions until you ask. Let’s be realistic. Parents are not afraid to offer unsolicited advice because they care about you and want to help. If you are living in their home, for free, as their child, listening to them is the least you can do. However, if you are living with them as an employed adult and paying rent, you should have a bit more latitude and freedom.

 Maybe you’re opting to get out on your own and rent an apartment. You probably lived with roommates in college, so consider getting a roommate or two to share your new place and expenses. You’ll save hundreds of dollars each month and you won’t be coming back to an empty home every evening.

If you think you’re ready to commit to the area for a few years, you may even want to consider purchasing a condo or townhome with an extra bedroom or two and bringing in roommates as renters. Not only would it reduce your monthly outlays, but you get someone to help pay the mortgage while you build equity.

Time to budget

You are now probably earning more money than you ever have before but your expenses will blossom as well. It’s important to balance the inflow and outflow of cash, and a budget can be a very useful and valuable tool.

 Write down your daily purchases. Create categories that match your spending patterns – rent, utilities, entertainment, student loans, and so on. It’s important to know how you spend so you can create a realistic budget. Budgets help you make sure you run out of month before you run out of money.

Recognize that while sometimes money problems are unavoidable, they also create unwanted stress. That is why you should budget to put something aside every month into savings so when the inevitable problem arises, you have a cash reserve to deal with it.

An easy budget to get started with is the 70-20-10 plan. Limit your living expenses and regular spending money to 70% of your take-home pay. Put 20% aside for emergencies and larger expenses such as vacations or furniture. Invest 10% in your retirement plan for your future. If you start doing this right away, you should be able to find the balance between sacrificing for tomorrow and enjoying today.

 Credit Cards

Credit cards are a great convenience, but you should plan to pay them off at the end of each month, period. The first time you are unable to pay off the card, STOP using it until the balance is zero. Many cards already have extremely high interest rates, but if you miss or make a late payment, the interest rate can sky rocket even higher. Once trapped under a mountain of credit card debt, the struggle to dig out can last a lifetime. The best approach is to never let yourself get buried in the first place.

You may have friends who sport flashy new cars. The new car smell will wear off, but the payments won’t. Your friends may love to post beautiful pictures from exotic vacations on social media. Vacations offer new experiences, but you’ll be much happier if you are not worried about the credit card statements that follow.

Be careful not to fall into the trap of trading memories for a mountain of debt in an attempt to keep up with friends.

Good debt and bad debt

Debt used to buy an asset like a home which is expected to appreciate over time can be good debt. Money borrowed to invest in productive assets such as a rental property may be good debt. A reasonable outlay for a car is also acceptable. Credit card debt is not good debt.

 You may have student loan debt. Student loans are an investment in yourself but they can also feel like a burden when the payments come due.

Timely student loan and credit card payments will both put you on the path to a higher credit score. That not only translates into lower interest rates when you need to borrow, but some prospective employers and landlords will check your credit history. Too many bad marks and you’ll find that job or place to live is off limits.

Balancing today’s wants and tomorrow’s needs

Short-term savings earmarked for a vacation, an emergency, or a down payment on a home will give you a sense of comfort and satisfaction but don’t forget to think about your longer-term need – retirement. You are young and while it may feel like retirement is a lifetime away, it is important to think about now. If you don’t start now, how will you feel when you are 32 and have nothing set aside for retirement? Or even 45? At a minimum, make sure you are taking full advantage of your company’s 401k and any match by your employer. In addition to the tax benefits, you’ll have a sizable nest egg before you know it. Time flies and life gets in the way. If you lay the ground work now, you will thank yourself later.

If you need assistance or have any questions, the DV Financial team is happy to assist. Some items may take effort, but they will pay enormous dividends. We want to be a resource for you.