Earning enough money is just the beginning, then you have to manage it. Everyone, from recent college graduates to those well established in their careers, can reap the benefits of improving their personal financial education.
Everyone knows that money can be tough. Doing enough is just the beginning, then you have to manage it. Millennials have their share of money regrets, including credit card debt, lack of financial planning, and of course the biggest one: college debt.
Now, many recent college graduates also have significant educational debt in the next chapter of their lives. The national average for college debt is around $37,000 per borrower. Respondents to a recent CollegeFinance survey graduated with an average of $22,000 in student loan debt, have $14,000 left to pay off, and expect to pay off within six to seven years.
College debt affects more than just your financial outlook. Overall, 27% of CollegeFinance respondents say their student loans made career changes difficult, including 36% of those who owe $51,000 or more. Three in 10 say the same for taking a career risk, including 44% of those with $51,000 or more in outstanding student loan debt.
“Managing significant student loans creates additional levels of stress,” says Ryan McPherson, Director of Training at SmartPath. “This can be amplified if the recent graduate’s income is not commensurate with the required debt payments. A higher debt load may mean that graduates are taking longer to save emergency funds and down payments on housing.”
5 tips to be smarter with money
Of course, it’s not just young people who could benefit from a little more awareness in the area of personal finance. “In general, Americans could use additional money management education for different life events, for example, managing student loans, buying a home, preparing financially for children, paying taxes and planning for retirement,” McPherson says.
“Employers have an opportunity to help with this issue by building financial wellness into their human resources benefits packages to help educate their employees on money management skills,” he says. But workers shouldn’t wait for their employer to take the first steps toward better financial education. McPherson offers five quick tips that college graduates, and the rest of us, can immediately implement to create a better financial future:
- Spend less than you earn. Really. “This is the foundation of any long-term financial success,” says McPherson. Of course, to spend less than you earn, you’ll need to keep track of both numbers. Budgeting software like Mint, YouNeedABudget, and others can help you get control of your money.
- If your employer offers a retirement match, contribute enough to get the full match. “That’s free money, don’t miss out,” says McPherson. Even if he’s just starting his career, it’s never too early to start saving for retirement.
- Pay your credit cards in full each statement cycle to avoid paying interest. “There’s no need to enrich the credit card company,” says McPherson. “It’s surprisingly easy for a $2,000 to $3,000 credit card balance to become a $6,000 to $9,000 problem. Compound interest (which works wonders with investments) becomes your enemy with credit card balances.”
- Create an emergency fund. Yes, surprise expenses will occur. “Start with one month of spending and then build up to three to six months of spending over time,” advises McPherson. Again, budgeting tools can inform your planning by helping you determine what an average month looks like. You’ll also be able to anticipate global expenses that only happen once or twice a year, so when the bill comes, it’s not a surprise or an emergency.
- If you have student loans, plan a strategy. “Will you seek forgiveness or try to pay off your loans as soon as possible?” McPherson asks. “Those loans won’t take care of themselves. Establish a payment strategy and make it work for you.”
Resources to be smarter financially
When it comes to personal finance, knowledge is power. “Start by reading as much as you can,” says McPherson, who recommends blogs like NerdWallet, Financial Samurai, Mr. Money Mustache, The Penny Hoarder, and Millennial Money. “These cover the basics, like creating a budget and smart ways to pay off credit card debt, all the way up to advanced topics, like investing in rental real estate.”
McPherson also has some book recommendations, including the psychology of money, Fuel: the most important number in your financial life (written by the CEO/co-founder of SmartPath) and The Behavior Gap: Simple Ways to Stop Fooling Around With Money.
“Some topics in these resources will interest you and others will be terribly boring,” says McPherson. “It’s fine, as long as you understand the basics. Dive deeper into what catches your eye.”
SmartPath also offers a free online resource called Money Moves Quiz, where anyone can answer 15 questions about their current finances and receive a practical plan tailored to their individual situation.
invest in yourself
The pandemic has created additional challenges for younger workers who not only experienced higher unemployment rates, but also missed out on opportunities for mentorship, networking and in-office training during the closures. “While this may not immediately seem like a financial challenge, it could affect career growth and opportunities for some,” says McPherson.
Despite these challenges, CollegeFinance found that about 6 in 10 people continued to make payments during the interest freeze period, among whom 86% were able to make progress on their loans.
People will continue to experience financial stress even after the pandemic is over. “It’s a scary time for recent graduates to enter the ‘real world,’ so it’s more important than ever for employers to provide financial wellness resources and support open enrollment further,” says McPherson. This can benefit both the employer and the employee, as surveys indicate that more employees would stay with their employer longer if they offered financial wellness benefits.
Money can be difficult, but there are many tools and sources of knowledge to make it a little easier. Wherever you are in your career, it’s always worth investing time in your finances and, ultimately, in yourself.