How to Navigate the Financial World after Graduation

How to Navigate the Financial World after Gradution

Over the next few weeks, thousands of students will graduate from high school and college with the promise of a bright future ahead of them. Up next is adulthood and living the American dream of … Debt. Lots and lots of debt, along with a heavy dose of financial confusion. Sadly, even a great high school or college rarely help students master personal finance so they can truly conquer the world.

I still believe college is a good investment for most people, but it does come at a price. Total outstanding student debt topped $1 trillion last year according to the Consumer Financial Protection Bureau. Certainly rising tuition and a lackluster job market don’t help, but I also believe many graduates are also simply unprepared to handle their finances.

5 Steps to Help You Navigate the Financial World

1. Have a Plan to Tackle Student Debt

I’m not quite sure how this happens, but most students enter college with the understanding they will incur X amount of debt, but few have a plan to actually pay off their debt after graduation. They accept debt as being normal, which can be a dangerous mindset to develop.

Most graduates assume they will earn enough money to pay back their student loans with ease, which would happen in a perfect world. Unfortunately, this is not always the case, so figure out a worst case scenario too. If you can’t find a job or it doesn’t pay enough to cover your monthly bills, what will you do? Will you work a 2nd and 3rd job? Find a roommate? Or move back home? What can you eliminate from your budget? Even though it may seem unbelievable, beer is actually a “want”, not a “need”. :D

My tip: Start saving to repay your student loans while you’re still in college. This can give you a Student Debt Emergency Fund to tap if you’re struggling to find a job or make monthly payments after graduation. A savvy college student might even ask Mom and Dad to match these funds contingent of them earning a certain GPA.

2. Invest in Your 401k

This is one the biggest missed opportunities that many people regret as they grow older. In 21 years as a financial advisor, I have never once had a client tell me they regretted investing early, but many regret not doing it sooner when they realized the lost opportunity.

The easiest place to get started is through your work’s 401k plan. I know it can be a bit overwhelming and retirement seems eons away. But right now, time is your best friend and thanks to the power of compound interest, you can grow an impressive nest egg.

3. Set Goals beyond What You’re Doing Friday Night

What do you want to do with your life? Do you want to own a home? Do you want to get married and have kids? Do you want to travel the world? How will you leave your mark on this world? Yes, these are big-picture questions that you might not have the answer to at 22 but start thinking about what you want to do, so you can start saving your money to actually do them.

4. Avoid Incurring Additional Credit Card Debt

I don’t consider credit cards bad. They can be a great tool to establish excellent credit and a lifesaver when your car breaks down in the middle of nowhere. The danger in credit cards is that they make it easy to live beyond your means. Funding a lifestyle on money that is not really yours is incredibly risky.

Remember those goals you created? Those are things you’re working towards, so when you see something you want, ask yourself, “will buying this bring me closer or further away from my goal of buying my first house?” It’s okay to treat yourself to the occasional night out, but just be sure it’s not creating additional debt for you. Otherwise, it’s not really much of a treat.

5. Develop a Frugal Mindset

Some people view frugal as being cheap. I think those are two very different mindsets. A frugal person is a conscious spender. Too many people buy things because they can without little thought as to whether they truly want or need it. A frugal person knows exactly what they want and saves for it. They don’t get distracted by the noise of advertisers or others telling them that they must have something that deep down they really don’t want. Nor do they believe the things they want make them better than others or entitles them to treat others poorly. They respect money and live within their means. They spend money on things that truly matter to them without creating additional debt in their lives.

Welcome to the Club

I hope college was a truly a wonderful time for you where you created life-long friends and memories and also learned a few things too. :) The real world is full of endless possibilities and opportunities but not having a strong financial foundation can prevent you from taking advantage of them. Don’t make that mistake. You’re an adult now and the decisions you make can bring you one step closer to living the life you haven’t even imagined yet. Welcome to adulthood.

How are you preparing your kids to enter the real financial world? What would you have done differently after graduating from college?

Shannon

The Heavy Purse Store is now open! My new downloadable Money Club Workbooks are now on sale. Each workbook provides five targeted lessons to help you raise Financially Confident Kids. Please check them out in The Heavy Purse Store.

Photos courtesy of www.freedigitalphotos.net.

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Comments

  1. Pauline says

    Great tips Shannon. Right after college I left for a year to travel the world. Had I stuck to a job for 3-6 months I could have gotten a loan and bought a bigger rental than the one I ended up buying cash. Considering I just sold said rental 10 years later for double the price, I missed out on a big chunk of money… I would advice people buy a house, and if they are not sure they’ll stay for a long time, make sure it has rental potential to avoid a short sale.
    Pauline recently posted…Help me help a reader get on track with her financesMy Profile

    • shannon says

      You’re great example of having a saving mindset early can you give you the freedom to do what you want with your life. We sometimes get stuck in a traditional mindset, which isn’t wrong, but it might not be right for you. Figure out what you want and if it’s retiring from the Corporate world at 28 to go live in Guatemala – well you’re proof it can be done. :)

  2. Glen @ Monster Piggy Bank says

    It is sad to think that many people graduating over the next few years will have such a difficult time entering the jobs market. You put in so much hard work and effort (not to mention accruing a huge student loan debt) and then you end up working at a fast food chain just to make enough money to survive.

    I have to wonder if it is even worth the effort to get a degree these days?
    Glen @ Monster Piggy Bank recently posted…Finding Little Ways to Save MoneyMy Profile

    • shannon says

      Unfortunately, I think that’s a question many are asking themselves these days. It’s a tough spot. I do think a college education is beneficial in most cases, but you definitely need to weigh options, be creative and most importantly in my mind – be prepared to handle that student loan. Few unfortunately are and it can put them on shaky financial ground for many years.

    • shannon says

      It’s true, Laurie! Hindsight is always 20/20. :) Long before they head off to college, parents need to talk to kids about the cost and what their responsibilities will be. I don’t think most students really understand the weight of debt until it’s thrust upon them and they are running scared.

    • shannon says

      Thank you for your kind words, Vanessa! I truly appreciate them. Sadly, debt is so commonplace these days that those without debt are the minority. It becomes so easy to add a little bit more debt here and there until you’ve taken on too much. College students are rightly exuberant when they head out into the real world, but their first financial steps also have a lot of weight that I don’t think they truly understand. Hopefully, through our collective knowledge and wisdom – we can help make a difference.

  3. Thrifty Dad says

    Great tips! One trillion is a really big number! I’m always astounded at the cost of some of the college tuitons in the US. There was something on the news last week about a good number of US students studying in Canada. I know that’s not an option for many, but there may be other cheaper options in-State that don’t require you to spend $20k of tuition per year. Even for a saver, that’s a hefty sum to carry. Education is a great and worthwhile investment, but salaries coming out of school don’t necessarily always reflect how much you paid in school, but rather what you do with that education that counts.

    • shannon says

      One trillion is an outrageously scary number! I also read that more U.S. students were heading to Canada for their higher education. It’s a huge debt load for a 22 year old to carry, especially when they have very little personal finance skills and/or experience. I agree education is a worthwhile investment, and part of that education needs to how to manage your finances so they don’t leap from college straight into their own personal fiscal cliff.

    • shannon says

      Thanks, Mackenzie! I think few people start investing in their 401k right a way. They don’t understand it and think it’s something “old” people do. When they get “old”, they will wish they had started investing back when they were young and carefree, especially when they start crunching numbers and see how their delay cost them. *head slap* :)

    • shannon says

      Thanks Darnell! I appreciate you stopping by and am glad you found me through 2 Guys and Your Money. I must respectfully disagree that investing in your 401k is a bad idea. The one I know for sure is the market will go up and it will go down. Market volatility may never be fun to experience but it’s also normal. Many people panicked when they lost money in their 401k and pulled their money to put it in a savings account, which cemented their loss and is earning them almost 0% interest. Today, the markets are reaching new highs. Will this last? No, of course not. But it’s through the ups and downs that investors make money. In fact if you are dollar cost averaging into a 401k when the market goes down you are buying more shares of stock. You can never time the market, but should always choose your investments based on your risk tolerance and goals. If a student comes out of college at 22 and starts saving aggressively in their 401k but later pulls back to buy their first home or to have kids or to put money into other investments, those early dollar have time to grow. The habit of saving is instilled early, and the reward is the time your money has to grow over the next 30+ years. This is usually the easiest time to get this habit started, before they grow their lifestyle into their new income!

    • shannon says

      Thanks, John! I loved your post too! :) So many people overlook their company match and miss out on free money. It eventually becomes another *head slap* moment for them.

  4. Sicorra @Tackling Our Debt says

    Excellent tips Shannon!
    It is so unfortunate that getting a good education costs so much these days and that so many people graduate and begin their careers so deep in debt. They hope that what they study will help them find a nice paying job, but it doesn’t always work out that way, and then they find it hard to enjoy their life because for the first 10 years they are simply working to pay off their loans.

    By the way, I love the you pointed out the difference between frugal and cheap. I think too many people confuse the two.
    Sicorra @Tackling Our Debt recently posted…Enter to Win a 64 GB Surface Pro: GiveawayMy Profile

    • shannon says

      Thanks, Sicorra! It is unfortunate that in order to get ahead in your career and hopefully in life overall, you start in debt. It’s doesn’t seem quite right. Particularly right now, given the current job market, parents and kids need to have a plan in place to address those student loans and too few do. Oh, I think there is a world of difference between frugal and cheap. I also think people resist adapting a frugal mindset because they think it means they are cheap and can’t have any fun. So not true!

    • shannon says

      Thanks, Tonya! It’s true, college students can be a tough audience, but hopefully I helped a few. Or maybe after a few months in the real world, they might come back and agree with me now. :) Then again, sometimes you just have to learn the hard way.

  5. Greg@Thriftgenuity says

    I think I could have stood to do more research about where I was investing. I made sure to set money aside in my 401k early, but other than staying diverse, didn’t really seek to understand the difference between various types of investments. I think it is good to get to know this early so when you have more money to work with, you will not be so overwhelmed and starting from scratch.
    Greg@Thriftgenuity recently posted…Life and Debt – My Debt DecisionMy Profile

    • shannon says

      401k material is often pretty, but not always very clear cut. Looking at the those different investment options can be overwhelming, which is another reason why I think so many people don’t participate. They don’t want to pick the wrong investment, so they sit on the sidelines. I’m glad you didn’t do that and knew to invest early and diversify. Not everyone even knows to do those things, unfortunately.

    • shannon says

      Thanks, Grayson! Such easy traps to fall into doing. Being out on your own and earning good money, it’s easy to get caught up in a spend mentality. And even though I know it wasn’t easy for you to eliminate your debt, you did it a very young age and can now work with a clean slate and the right mentality.

  6. Lindsey @ Cents & Sensibility says

    Hi there!
    These are some good ideas for how to prepare for student loans. I know for myself, I didn’t fully understand what I was taking on when I took out over $45,000 in student loans (I was a single parent at the time).
    I thought in idealistic terms and had no idea I would be stuck at a minimum wage job for the first two years after graduating to build up “experience” to apply to more senior jobs. $9 an hour does not go a long way when your payments are $600 a month!
    Lindsey @ Cents & Sensibility recently posted…What should have happened: Epic FailMy Profile

    • shannon says

      Hi Lindsey! Everyone takes out those loans with the best intentions. And for years, it worked just fine. But with a tight job market, it’s been incredibly eye-opening for many people as they have had to struggle to cover their bills. While I do consider college to still be a good investment, parents and college-bound students need to be aware that the job or pay they expected may not be there for them when they graduate. I am an optimist, but they need to have a worst case scenario plan ready. I imagine it was very tough making $600 payments on a minimum wage salary, but hopefully things are in a better place for you now! Thanks for stopping by and commenting. I really appreciate it!

  7. Canadian Budget Binder says

    Excellent Tips! I worked through the week, weekends and during the summer to save up for my first education. I continued to work while going to school, incurred no credit card debt or any other and bought my first home at 21. I think if students get rid of the “debt mindset” like you mention they may just see beyond that. Students do not have to any or all debt from school if they plan, set goals and budget their money. There’s nothing wrong with moving back home after school either to save up cash, look for a job and work while you’re doing it. Great article Shannon.
    Canadian Budget Binder recently posted…Financially Savvy Teen Budgets Cash Using The Envelope System!My Profile

    • shannon says

      Wow, Mr CBB! At 21, you were ahead of people twice your age! But knowing you – that’s really not a surprise either. As a society we have accepted debt as being normal and understandably to an extent it is. But we’re so comfortable with it that it doesn’t bother us to have it or add to it. We need to help students see there is a different way to approach debt. One that will ultimately give them the freedom and choices they really want.

  8. Samantha@CreditCardShoppe says

    Great ideas. I wish someone would have shared this stuff with me before I entered college. I learned the hard way. I think high school kids should be forced (or strongly encouraged) to take a course on finances and money management. It would change a lot of young people’s mindsets and help them from stumbling head first into debt.

    • shannon says

      Thanks for stopping by and commenting, Samantha! I really appreciate it. Many of us had to learn the hard way. The good news is financial literacy is headed to the schools, but it’s a little too late for our current graduates, unfortunately. I wholeheartedly agree that improving personal finance skills of those young and old needs to become a priority. Too many people take on debt without really understanding what they getting themselves into until it’s too late. Hopefully, we can help make difference. :)

  9. Matt Becker says

    This is all great advice for any graduate. I think the auto-enrollment trend in 401ks is great because it removes it as a choice to be made by people who, as you say, are largely not giving any thought to retirement. The easier we can make good financial decisions, the better.
    Matt Becker recently posted…The Basics of Estate PlanningMy Profile

    • shannon says

      Thanks for stopping by and commenting, Matt. I really appreciate it! I agree the auto-enrollment trend is a start in the right direction. We also need to help them adapt a save/frugal mindset. The upcoming generation, even more so than the previous ones, have been raised on instant gratification. That learned behavior doesn’t disappear overnight and we have to help them see how conscious spending and truly achieving the things they want without debt is a happier way to live.

  10. Corina Ramos says

    These are great tips Shannon.

    After I graduated, my mom was like, that’s it girl you’re on your own and I took it from there. I can’t blame my mom because that’s how it happened to her.

    Now that it’s my turn, I’m breaking that cycle because I want something better for my kids so I do take time to talk about money and saving whenever I can, especially now that they’re teens.

    My son just started his first job about a month ago and we were talking about his 401K. He just couldn’t believe how much planning is involved.

    It’s funny as teens we want to hurry and grow up but when it hits us, we want to be a kid again :)
    Corina Ramos recently posted…Monday Work from Home Job Lead Madness 05-06-13My Profile

    • shannon says

      Thanks, Corina! I’m glad you’re breaking the cycle and talking to your kids about money. It can only help them. And I am thrilled that your son is already looking into his 401k. It is a little overwhelming, but worth taking the time to figure out. And you’re right – as kids we couldn’t want to grow up and now we remember our care-free youth with longing. :)

    • shannon says

      Absolutely, Mike! A lot of people create goals, but forget to break them down into manageable pieces. It’s certainly easier to achieve a goal when you know exactly what steps you need to take.

    • shannon says

      YEAH!! Congratulations! You must be sooooo excited! Good luck on your job hunt – may it be quick and easy so you can start investing in your 401k!:)

  11. BrokeMillennial says

    I really love these tips! Especially about an action plan for paying of student loans. I’m not sure how other universities address financial literacy, but my college had a required seminar for all seniors to learn the basics about finances. Honestly, it should have been a required course instead of a 2 hour lecture, but at least they explained student loan repayments, how to budget and basics about savings.

    P.S. Thanks for calling out the difference between being frugal and being cheap!
    BrokeMillennial recently posted…Braving the Financial Minefield of DatingMy Profile

    • shannon says

      Thanks, Erin! I’m glad your college at least had a seminar on finances, but definitely agree it should be a course, mandatory, if possible! :) Spending the money from their student loans is easy, but so many college students are unprepared to actually start paying them back. And yes, frugal and cheap are worlds apart.

  12. anna says

    I would have definitely been more aggressive in paying down my student loans in hindsight. I think a lot of people get caught up in thinking debt is normal, as you state, when it doesn’t have to be (and honestly, shouldn’t). At least what I know now, I can pass along and guide to any future kids I may hopefully have!
    anna recently posted…Men, on first dates, please don’t…My Profile

    • shannon says

      Hindsight is always 20/20, but you know differently now and that’s what matters most. Your future kids will certainly benefit from your insight and knowledge, and yes – even some of your mistakes. We all made them. :)

  13. DC @ Young Adult Money says

    These are all really great suggestions! I think the biggest thing is make a plan for tackling student loan debt. At minimum you should get used to paying your student loans ON TOP of rent, food, gas, entertainment, etc. Some people move back home to pay down student loan debt but it runs the risk of you getting used to not paying rent AND your student loans.
    DC @ Young Adult Money recently posted…Things to Sell at a Garage SaleMy Profile

    • shannon says

      Thanks, DC! I agree – the sooner you can mimic the real world and see what your monthly expenses will be the better. I think that exercise would be eye-opening for a lot of Seniors who sometimes view life after college through rose-tinted glasses. There are lots of opportunities waiting for them, but they often come with a price too.

  14. Dennis says

    Great post and right on time for graduates! :) However your main point, in my opinion, is aimed at juniors and even sophomores: have a fall-back plan and be ready for the worst-case scenario. Few students speculate about that and most dwell in pink dreams.

    Knowing your “worst next thing” is generally a good idea for people of any age. Once you have a clear image of your fears documented somewhere in your brain, you feel calmer and more determined. At least I do :)
    Dennis recently posted…5 Kid-Friendly Snacks that Beat Lunchbox Peer PressureMy Profile

    • shannon says

      Thanks, Dennis! Oh absolutely, in the perfect world, parents and their kids would create a plan to tackle student debt in high school when they start looking at different colleges instead of waiting until they graduate from college. Unfortunately, most don’t and most don’t even think about student loans until they get the first bill, sadly. So even though it would have been better to do it while they were underclassmen (or again – even in high school!), better late than never. :)

  15. Adrienne says

    Today is the last day of school for my nephew Shannon, the last one just now out of high school. I’ll be flying up to Nashville next weekend to attend his graduation. I probably should point him in the direction of this post. Not that he’s irresponsible with money in the least. He’s holding down two jobs right now and his mother is pretty good with money. His Dad was another story but we lost him 13 years ago.

    I think he’ll be one of the smart ones about money but it doesn’t hurt to advise him now does it!

    Thanks for this great post right at this particular time. I finally have a child in my life that is fixing to head out into the world. I’m so very proud of him too.

    ~Adrienne
    Adrienne recently posted…The Death of TweetDeck v0.38.2My Profile

    • shannon says

      How exciting, Adrienne! It sounds like your nephew has a great head on his shoulders and a bright future ahead of him. Best wishes to your nephew; he’s beginning an exciting new journey.

  16. Kim@Eyesonthedollar says

    I wish I’d done all of those things better right after graduation. I’ll make it my goal to teach my daughter about student loans if she has to take them. My parents had no experience with such things, so I don’t think they could have helped me even if they had tried. It’s so tough for new grads with all the advertisers catering to them. I saw an ad today for special new graduate financing on a new car. That’s another reason that financial education from a very early age is so important. Otherwise, grads can end up looking at the minimum payment and not thinking long term.
    Kim@Eyesonthedollar recently posted…Your Group Life Insurance Policy Might be Limiting YouMy Profile

    • shannon says

      I absolutely agree, Kim. Financial education is critical. Too many are taking on loans without truly understanding what they are signing up for. They just think it’s what they need to do, so they do it. By the time they realize that debt is no fun, they are hip-deep in it.

    • shannon says

      Thanks, Kyle! I wish they all had this information and would act upon it too. Thanks for stopping by and commenting. I appreciate it!

    • shannon says

      Thanks for stopping by and commenting, KC. I really appreciate it! I wish more graduates were pretty prepared to handle their financial responsibilities too. Some day …

  17. Jeff Ehrlich says

    Shannon, Great tips for those graduating from high school. We have a “Flying the Coop” project we put together for those thinking about moving out on their own. Free checklists are included to help them get started on the right track. Also check out Dave Ramsey’s college guide to help students to get out of college with little or NO debt. I would suggest a debt card vs. credit card for that new college student. Feel free to use our “Flying the Coop” project. http://www.debtfreesquad.com/flying-the-coop/
    Keep up the great writing, Jeff
    Jeff Ehrlich recently posted…Plan for College: Go to college debt free!My Profile

  18. Scott @ Youthful Investor says

    I think right away, the first plan of attack should be, to have a plan of attack. I regret not planning for myself before graduation and a I know a lot of people were in that boat with me. For me, college was a breeze. I had a lot of free time between classes, work and hanging out with friends. It was so much fun. I should have spent a little bit more of that time sitting down and working through the numbers, not just day dreaming about the meaning of life (although that was fun).

    The biggest problem though is that we do not take our student loan debt seriously enough. We sign the papers and move on. When those bills actually start coming in the mail after graduation, it can be really scarey. It’s also an eye-opener for many. All of the sudden, we are on our own and have the equivalent of a house or car payment, without either in our hands.
    Scott @ Youthful Investor recently posted…5 Great Books to Learn Asset AllocationMy Profile

    • Shannon says

      Thanks for stopping and comment, Scott. I appreciate it! I agree it’s critical to have a plan of attack and unfortunately most students (and their parents) do not. The assumption is that the graduate will land a good job and be able to pay off the debt with ease. In a perfect world that happens, but with higher student debts and a shaky job market that isn’t the case for many graduates. A plan for good and bad times is a necessity.

Trackbacks

  1. [...] Robert @ The College Investor is helping young graduates get ready for Professional Life After Graduation. Jon Haver @ Pay My Student Loans has a method to Pay Off Student Loans Fast. Kristen Hawley @ ReadyForZero Blog helps you get rid of Your Student Loan Debt and plan your financial future, and Shannon @ The Heavy purse has tips on How to Navigate the Financial World after Graduation. [...]

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