College Graduates Should Budget (And Save!) Right Away
When Ryan Dwyer received his undergraduate history degree from the University of South Florida in 2016, he felt a sense of accomplishment. His hard work had paid off with society’s definition of the ticket to a brighter future.
But the degree has simply given him entree into another realm of much harder work: grinding through an entry level job; planning for law school; and dealing with a massive student loan.
Fellow USF graduate Patti Sanchez, a marketing major, has been dealing with her own reality. Unable to find a job in her field, seeking to make ends meet, she has moved back home with her parents.
“Not what I had planned,’’ Sanchez said. “I won’t be there forever. Sometimes, it takes you a while to get going.’’
In the meantime, Dwyer and Sanchez have to design budgets that allow them to live the post-college life they envisioned and still have enough money to meet expenses. Recent studies show they are already in a hole starting out.
A 2016 survey showed 82% of students giving themselves a grade of “C” or below at money management. Complicating the matter is the fact that more than 70% of the 2016 graduating class left school with student loan debt. The average amount owed is $37,173, a jump of 6% over 2015 and yet another record for student loan debt. Estimates are that graduates with student loan debt will have to pencil in around $350 a month to pay back those loans.
University of Washington sociology professor Kara Dillard, appearing before the National Press Club last June, said financial woes for young college graduates have become a national epidemic.
Dillard said she sees many people with degrees — “including those in the STEM (science, technology, engineering and math) fields’’ — who are unemployed, underemployed and increasingly discouraged. They wonder why there isn’t better opportunity, especially in study fields that have been promoted as the pathway to a high-paying job.
“I like to call this a transition period,’’ said Dwyer, 22, who is working as a roof inspector as he applies to law schools and prepares for his entrance exam. “Life is good — for now. Ten years down the road, I want to be a successful lawyer. When I’m 30, I want to be entering my prime, both professionally and personally.
“Right now, it’s about working hard and putting in as much work as you can, just grinding it out. It’s going to pay off. I’ve done what I need to do in terms of getting a college degree, but there’s so much more work to do.’’
Much of that work involves budgeting effectively. There are ways to achieve financial independence, but it often requires discipline and sacrifice for at least the first few years out of college. Some helpful guidelines to follow:
If that information is easily available, you’re off to a good start. Other indications of transparency include:
- Get a Roommate – It’s an accepted part of the college lifestyle. After graduation, many people want some independence, living alone in an apartment or house. For Dwyer, it was a no-brainer. He has a roommate, a friend who already is in law school. They split the rent, the utilities, other expenses and fees. They combine on the food and take turns cooking. “I actually like it,’’ Dwyer said. “We motivate each other. When I’m good and he’s bad — or when I’m bad and he’s good — we help each other get on the right path. We bounce ideas off each other. This won’t last forever. And it really helps with the expenses.’’
- Move Back with Parents – Dwyer, originally from the Philadelphia area, never considered this option. He found value in carving out his independence and becoming his own man. For Sanchez, it was a way to save money. Her relatively informal agreement is different than other arrangements, where some parents have hard-and-fast rent-payment agreements with their children. “I don’t want to be a total freeloader,’’ she said. “I pay for some things.’’ Sanchez plans on accumulating about six months of living expenses before she’s ready to go out on her own – probably with a roommate.
- Do Some Reading – Financial literacy is not a required course at most colleges, though it obviously should be. Find some books that talk about the subject – specifically ones dealing with acceptable costs for rent, automobile, food, clothing, entertainment and other common spending habits – and read up on researched programs that help young people get started on the right foot financially. While you’re there, it makes sense to look into books that give the fundamentals on how and when to start investing.
- Start an Emergency Fund – Most experts agree that it’s a good idea to have an emergency fund, anywhere from three to six months (or longer if it can be achieved). “It’s definitely on my radar — with the caveat that it’s so difficult to do so when you’re not bringing in a lot of money,’’ Dwyer said. “It seems like the price of everything is up these days. Any time I get a surplus, I try to stash it away, but a true emergency fund, like when people lose their jobs or if there’s another recession, no, I don’t have that. I know the value of savings and getting an early start on the 401k, but I’m not able to do it right now.
- Chip Away at Student Loans – According to the 2015 National Financial Capability Study (NFCS), released by the FINRA Investor Education Foundation, 71% of all college graduates are dealing with some form of student loan. The average is $35,000, a figure that has tripled in the past two decades. The total student-loan debt is hovering around $1-trillion. “I’m pretty much paying the minimum,’’ Sanchez said. That is not the desired course. Interest rates can be crippling. Experts suggest paying more than the minimum, even if it’s just a little bit. Former students should also take advantage of the grace period before monthly payments kick in — usually six months after graduation — and build up a reserve that can be used to pay down the loan. There are also creative solutions that offer student loan forgiveness, such as volunteering, taking a job in a specific field or moving to a certain area. For others, an income-base repayment plan can make payments affordable.
- Forget the BMW (For Now) – New cars look good, run good and smell good, but their impact on the bank statement … not so good. Dwyer said he drove a used car throughout college. He wants to get an upgraded used car as soon as his finances will allow.
- Spend Wisely – There’s an assault on young American consumers, practically demanding that they purchase an array of goods and services that will make you seem “uncool’’ if you don’t have them. Ignore the assault. Put away the credit card. “It’s wants and needs,’’ Sanchez said. “It’s not easy because there are things you really want. But are they things you truly need? It takes a lot of discipline. Hopefully, it will pay off for me.’’
- Keep the Future in Mind – It’s all about the end-game, not temporary satisfaction. The perfect life can’t immediately be set up with a college degree, but it helps to crystalize the path. “You’ve got to have some goals and you’ve got to figure out how to achieve them,’’ Dwyer said. “I see way too much dependency from young people, whether it’s on money they don’t have or relying on other people. This world can be a tough place. Sometimes, you’re going to be left alone and you have to handle it. You have to make your own ideas and execute them. When you get out of college, you’ve got to pull up your big-boy pants and take care of business when that time comes.’’
About The Author
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
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