Money Management for College Grads: Self-Discipline Is Key to Avoiding Debt Pitfalls
Garmhausen, Steve, Black Enterprise
AS 22-YEAR-OLD BROOKE BRACKENS KICKED OFF HER final year of studies at Texas Southern University this past September, the marketing major also started something else: her job search.
Getting an eight-month head start may seem like overkill, particularly for a student with a near-perfect GPA of 3.7. But Brackens' high debt load--a $5,000 credit card balance and as much as $35,000 in student loans--meant she literally could not afford to graduate without a job in hand. "The closer I got to graduation, the more the anxiety built up," she says. "My top priority is paying off my debt."
Brackens' debt initially rose after graduation as she used plastic to help furnish her new apartment. Luckily, her parents also helped with some of the cost. And because they also gave her a car in college, an auto loan is not part of her worries. Brackens did land a good job as a field sales and marketing executive with Avi-Tech Electronics, but it took the entire eight months to do so, she says.
She's not the only new graduate whose nerves have been tested by a weakening economy and a declining job market: Unemployment jumped half a percent in May to 5.5%, its biggest increase in 22 years.
Between their debt, the shaky economy, and rising prices, today's college grads probably wish they could have tacked on an extra year of studies. But experts say that because most had to live frugally during college, they are in fact primed for success. With continued self-discipline--and smart money management--Brackens and her peers can be extremely financially successful. "Good habits now while you are making a small amount of money will last forever and help you build more wealth than you can imagine," says Howard Hook a financial planner with Access Wealth Planning in Roseland, New Jersey.
It should help that starting salaries--despite the wobbly economy--are on the rise. They're up 7% compared with a year ago, according to the National Association of Colleges and Employers. The key is having a long-range perspective, one that holds out ambitious goals and makes the daily sacrifices and discipline seem worthwhile, Hook says. "It's very hard to tell a 22-year-old not to buy a new car or not to eat out," he adds. "But if you're working toward a goal, those sorts of things are easier to deal with."
Yes, paying down debt and putting money aside for saving and investing--even while paying for necessities like an apartment and a car--can seem daunting. The trick is to continue with the college mind-set for a while--or in the words of Dean Junkans, chief investment officer of Wells Fargo Private Bank, "live below your means." Being frugal during the first two or three years of a first job can yield in an impressive head start in saving and investing, he says.
And that can make a huge difference in your lifelong financial security. If a 25-year-old starts investing just $4,000 a year and earns a 10% return on that money over time--a reasonable expectation--he or she can have $1 million by age 58 and $2 million seven years later, according to Jan Dahlin Geiger, a certified financial planner with LongView Wealth Management in Atlanta.
One way to free up cash for those investments is to make wise spending decisions. For example, many celebrate landing their first big-time job by splurging on a new car. But Junkans suggests buying a car that is 1 or 2 years old, with low miles and remaining warranty coverage.
Used furniture and appliances work as well as new items and will save you a bundle, adds Stephen Seaward, director of the career development center at Saint Joseph College in West Hartford, Connecticut. Get to know Craig--as in Craigslist.org, the free, online classifieds site where bargains aplenty are to be had.
Finally' a great way to save a serious chunk of change is to suck it up and get a roommate--or even, gasp, live with your parents for a while, Seaward adds. …