It’s May. Which means that, if you live anywhere near an institution of higher learning or in a city swarming with them (as I do), you’re already awash in proud parents and their children clutching freshly engraved or inscribed diplomas, ready to venture out into the world.
And while a new generation of graduates prepare to listen to the commencement speeches that will usher them into the world of work I thought this was probably an opportune occasion to trot out some words of wisdom of my own.
No, they don’t revolve around paying your student debts on time – although that probably isn’t a bad idea, if you can, since it’s very difficult (if not utterly impossible, despite commonly held beliefs to the contrary) to discharge these in bankruptcy.
Instead, they are tips on what you can do now to stand the best possible chance to do well financially. By which, I don’t mean making a million dollars by the time you’re 30 and retiring by the age of 35 to play golf or save the world. If that’s what you want to do and you can manage it, go for it. But for most of us, doing well financially simply means being able to view money as a tool. As Mr Micawber famously declared in Charles Dickens’s David Copperfield, “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
If you’re graduating from college today, you’ll never be in a better position to begin thinking about money the right way, as you start your first full-time career-oriented jobs and begin collecting salaries and benefits, rather than simply pocketing pay checks. It’s a time when you start out with a (relatively) clean slate; when you can develop great habits, get out of the starting blocks with a head start. Or you can make some early mistakes that will set you back.
Here are some points to ponder.
First of all, money does matter. Your commencement speakers will talk about following your passion: do what you love, try and fail, work for free. That’s fine – up to a point. It works if you have a very clear goal in mind, and you’ve already been working towards it: if, for instance, that you know that there is nothing else in life that you want to do other than become a fashion designer, or a sports journalist, or a circus trapeze artist, or an entrepreneur in some industry so new that it doesn’t even have a name (but you know exactly how you’ll create the business and how to make it grow and pay off).
If you haven’t already been preparing for that, and are still pondering what that objective might be, this might not be the time to amble around looking for something that you can love. Find a good job that plays to your strengths, and will reward you for them. Odds are that over time, as you progress in your career, what you love will sneak up on you from behind and reveal itself to you. And if you’re smart, you’ll have been socking money away in your savings and retirement accounts, awaiting that day, and you’ll be financially prepared. You’ll also have acquired a lot of useful skills in the meantime.
Which brings me to my second point. It’s exciting to have a steady stream of income in the form of a salary. Don’t let it go to your head. This is not the time to go and buy a new car, and it’s certainly not the time to lease one. Nobody in your new company expects you to drive a 2015 model (in fact, they might start questioning your judgment if they spot you in one, unless they know that you’re a trust fund baby). As long as your vehicle is roadworthy, save your money. You still have to prove your worth in your new position, and your priority should be saving, not spending.
If your company offers a 401(k) plan, and you can afford to participate after covering your basic living expenses, leap on it. If you start off saving $5,000 a year when you’re 25, by the time you’re 65 and ready to retire (assuming that it grows at an average annual rate of about 5%, a fairly conservative figure over that length of time) and that you have kept up your contributions at that rate consistently, you’ll have $916,618. Delaying only a decade, until you’re 35, and you cut that almost in half, to $483,152. The reason? The joys of compound interest. It’s hard to think about a future that is decades distant – and easy to tell yourself that 65 will never arrive when you’re 25. But it will (or at least, you hope it will). And if the payoff is an extra $435,000, well, isn’t that an attractive enough carrot to keep you focused, especially when set beside $500 a month out of your salary?
Figure out what is a necessity, and what isn’t. New clothes might be – once you know where you’ll be working, figure out the dress code, and understand how those in your rank at the company dress. You’ll want to look polished and professional, but you don’t need to wow your mentor with how much better dressed you are than he or she is. That could backfire. The same applies to spending every night heading out on the town with friends. No, you don’t need to worry about exams any more – but you don’t want to blow your money on pricey drinks or dinners, and you don’t want to run the risk of getting a reputation of that guy who parties too hard on weekends to be fully functional on Monday mornings.
Be prepared. You’ve gone through college in the midst of a tough job market, and know the statistics. You’ve probably discovered just how hard it is to find a job that you want, in your field. The average worker stays at his or her job for only about four years; for younger workers, that number is lower. You may love your job, but corporate HR departments work in mysterious ways, too. This means that you need to build up a good-sized emergency fund, so that if you do find yourself suddenly unemployed, you’ve got a cash cushion on which to rely (in addition to whatever severance benefits you receive).
That’s why this also is a good time to find someone who can help you develop a good financial plan. Most millennials don’t have one, and that’s going to make achieving your financial objectives that much tougher. You don’t need to have an ongoing relationship with a financial adviser: many of them may well be happy to sit down with you for an hour or two once a year to walk you through key elements of a plan, and then make sure you’re following through. In your 40s, when your assets have increased and your financial needs are more complex, you can think about hiring a full-time adviser. There also are so-called robo-advisers: online investment firms that provide clients with automated investment portfolios. These have their attractions, although they don’t always take into account personal circumstances.
The good news about all this is that it’s all less traumatic than it feels at the time. If I could somehow travel back in time, the single message I’d try to drum into the head of my 21-year-old self is to calm down and relax. For every curve ball that life delivers, there’s a lucky career break – a bonus, a promotion, a job offer. The further you progress in your careers, the more skills you’ll have to offer prospective employers and the more value you’ll bring to the table in salary negotiations.
At the end of the day, what feels like a terror ride at the amusement park while you’re trying to figure it all out, ends up looking like a fabulous adventure. Really.
