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. It also ushers in a new phase of personal finance.
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 center on your finances. As a free graduation gift, take in some of the best financial advice for new graduates we could find.
While there is a lot of financial advice floating around out there in the universe, the following are 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. Accepting a job in an unrelated field simply because it pays more can either delay your career progress or worse, trap you in a field of work that may not make you happy.
Think Twice Before Moving in With Your Parents
As of July, 2020, 52% of young adults (18- through 29-year-olds) lived with one or both of their parents, up from 47% in February of the same year. 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 you'll grow faster and learn more by being on your own, even though it may be a struggle at first.
Many college graduates return to their parents' home to save money, but some lack the discipline required to save and end up spending their earnings on wants like entertainment, electronic gadgets, and social life. Moving home will work for you only if you're sure you won't fall into that 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 save a bundle 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
The majority of Americans have no idea how much money they spend 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 Millenials knowing. If you're in that category, don't get turned off by the concept of budgeting. Budgeting isn't simply an exercise of "living within your means," but rather it's about being knowledgeable and prepared for whatever life throws at you financially.
Think of a budget as a spending plan to guide your spending and saving so you can have the things you really want. Don't get sucked into trying to afford a certain lifestyle.
In addition to maintaining a budget, consider adopting an emergency fund. This stowed-away amount of money 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 incorporate savings into your expenses equation. This means building up 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 individual retirement account (IRA) and begin making contributions there. By starting to save for retirement in your 20s, you can greatly 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 hefty nest egg.
Educate Yourself About Personal Finance
The best way to learn about personal finance basics is to find a financial expert that resonates with you and study their advice. Many financial experts, such as Dave Ramsey, Suze Orman, and Rich Dad Poor Dad's Robert T. Kiyosaki, offer instructional books, podcasts, YouTube videos, audiobooks, seminars, and other content geared toward educating people about how to best manage their finances. Decide which way you learn the best, and dive into content that can help you adopt a financially secure future.