A clean slate: How to manage your money after college
Student loans, credit card debt and the expenses involved in moving to a new city can all ratchet up costs after graduating from college. Looking back at his own decisions, Hamm offers readers his game plan on how to spend wisely.
It’s a simple question, and one I think about surprisingly often.
Let’s say I could magically roll back the clock to the end of my final year in college. I’m single at the time, but I’m planning on getting married in the next few years. I have a job lined up, but I’m not sure how secure it is. At the same time, I have a pile of student loans that I’m about to face – $40,000 or so – along with a car loan and some credit card debt.
What’s my game plan? What would I do at that point to get myself in the best possible financial shape today?
Here’s exactly what I would do. I believe that most people in financial or professional challenges can draw some useful ideas from what I’m describing here.
First, I would continue to live much as I did in college. That first job out of college is a big raise in money and it’s really tempting to “live a little.” However, “living a little” without a good financial foundation is a pretty big mistake. I’d avoid it like the plague.
What I would do is figure out what I was bringing home each month before getting the job – plus, say, 20% for professional expenses – and add to that the monthly cost of student loans. That’s how much I would keep in my checking account. The rest would be saved.
In other words, for a while, I would continue to live on my college budget, plus a little extra in order to ease into my professional life.
The next step? The first day of work, I would sign up for the retirement plan there and contribute at least 10% of my income. I would be unhappy if I were saving less than 15% of my income, including any match I got from my employer.
The day my first paycheck arrived, I would leave my living expenses – mentioned above – in my checking account and move the rest to savings. This would be my emergency fund. I would keep building it until I had a month’s worth of living expenses in that emergency fund.
Once the emergency fund was built, I’d start whacking away at my debts by order of interest rate. All of that extra money each paycheck would go toward making giant extra payments on my debts. I would keep whacking on them until they vanished.
The real challenge here is to avoid the temptation to spend and to inflate my lifestyle. If I learned one lesson from my experiences with debt over the past decade, it’s this: if you have debt or if you aren’t saving enough for retirement or your big goals, you just don’t have enough for that new, shiny thing you want. Sure, you might be able to come up with the cash easily enough, but that doesn’t mean you can truly afford it. It just means you’re choosing to sacrifice something you need that’s not particularly urgent for something you happen to want (and that want usually is urgent – you want it now).
A need that is not urgent should always trump a want that is urgent. Just because something is urgent doesn’t mean you should convince yourself that a want is more important than a need.
A final step: if I found myself not using something, I’d put a piece of masking tape on it. On that masking tape, I would write a date one year in the future. If I found an item with a date on it that had already passed, I’d sell that item. There’s no reason to keep around items that you use less than once a year. If you use something that infrequently, then the financial value of that item is more than whatever usefulness it has for you.
There are two other things I would do as well that might not seem like they’re financially related, but they can really come in handy over and over again in professional, frugal, financial, and social ways.
First, I’d work on establishing strong friends. This means I’d shelve the idea of talking bad about anyone, particularly behind their back. This means that when someone asks for help, I’ll provide it if possible. This means filling up as many lunches and evenings as possible with social activities that can actually build strong and lasting relationships. A night at home alone every once in a while is great, but a night where you’re building lasting friendships is better. Such friendships come in handy again and again and again throughout life. The more you have, the better off you are.
Second, I’d figure out my career path. I’d look to find a professional mentor in my career path, someone who had achieved many of the things I wish to achieve, and I’d pick that person’s mind a lot. What do I need to do to get from where I’m at to where they are? I’d also apply the same philosophy to workplace relationships as personal ones – avoid negative talk, help people when they need it, and build connections with people. I would also spend time building my professional skill set through taking classes and freelancing whenever possible.
These two things would fill up my social calendar with activities that should both be enjoyable as well as personally and professionally fulfilling.
I didn’t do a lot of these things during my first years after finishing college. In fact, I didn’t really know I should be doing them. Luckily, I was still able to find a path that worked, but I made many mistakes along the way.
Everyone is going to make mistakes. That’s life. The key thing is to constantly look at yourself when things go wrong and ask yourself how you can improve the next time around. What can you do starting right now to make sure that this problem doesn’t happen again?
I’m happy with my life as it is right now, but this is the advice I’ll be giving my own children when they’re about to head out on their own for the first time.
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