A Common Story for New College Grads
When Krystal Moore graduated from the in 2004, the accounting major was expecting a grand offer from a Fortune 500 company with a starting salary at least in the mid-40s. Instead, she found herself working for the state of Louisiana, making significantly less than she wanted in the accounting department at Louisiana State University, Baton Rouge. Moore, struggled to pay her rent, utilities, cell phone, car insurance and student loans on her salary.
Trenice Bishop, 22, knows Moore’s struggle all too well. Bishop graduated from Howard University in 2005 with a degree in television production. When she didn’t get an entry-level position in her field after graduation, she worked part-time as a hostess at a Washington, D.C., restaurant as well as holding a second job at an aftercare program. Overall, she was bringing in about $1400 a month.
“At first I thought I’d be able to maintain my bills,” Bishop says. But with credit card bills, a car note and student loans totaling more than $100,000, she just couldn’t make it own her own and had to move in with her mother.
Saleema Rasheed also thought she could keep up with her bills. When the 25-year-old graduated from Tuskegee University in 2003, she had dreams of becoming an actress and director. Instead, the psychology major had to move back to her hometown of Boston after graduation because she couldn’t find a job.
“I had so many grand visions of what my life would be like,” Rasheed recalls. After a year at home, she moved to New York City to attend film school, but found she couldn’t afford that, either. So she stayed with friends and family before finding a place of her own.
Rasheed worked in theater production and as a teacher and athletic coach to make ends meet. She admits she wasn’t always wise in her spending; when she did have extra money, it sometimes went toward things she really didn’t need. And when her teaching job ended and Rasheed had to live off her savings for two months, she came up short.
“I thought it would be enough,” Rasheed says, “but before I knew it, it was gone.”
She contemplated a return to Boston, instead choosing to move to Atlanta and live with her fiancé. Today, she works as a musician’s administrative assistant, and he sells home security systems. “Between his income and my income, we do fine,” Rasheed says. “But at the end of each month, I’m always short of cash for just little things I want to do. It’s kind of tough.”
Becoming a Financial Adult
The transition from college to adulthood can be overwhelming. For many, it’s the first time in their lives they’ve been out of a classroom, free to plan their days and their futures. And once their work situation stabilizes — whether they’re in that dream job with a good salary and benefits, or waiting tables to make ends meet — knowing how to manage that first regular paycheck is a major lesson of adulthood.
It can be a difficult lesson for recent college grads, whom have had to live on a budget for so long. Now they’re juggling rent, utilities, student loans, credit card bills and other living expenses. And because many will have more money than they’ve ever had before, there’s also the urge to splurge — a fancy apartment, trendy clothes, a new car, a grand entertainment center and expensive furniture. Before they know it, debtors are calling and they’re struggling just to put food on the table.
“Having gone through undergraduate and graduate school, I know the challenges [begin] as soon as you get out of school,” says Lynnette Khalfani, a personal finance expert known as the Money Coach and author of the bestselling book, Zero Debt: The Ultimate Guide to Financial Freedom 2nd Edition. “Some people have the expectation that they will get that great job out of school. Khalfani has some advice for recent graduates — those who have their dream jobs and those who don’t. Whether you’re making minimum wage or enjoying that six-figure salary, there are some money rules every grad should live by.
Here are a few of her tips:
Manage Debt Wisely.
Most college graduates have an average of $20,000 in student loan debt, topped with another $32,000 if they attended graduate school. “You really have to be smart about handling your debt and taking on, in particular, bad debt, such as credit cards,” Khalfani says.
Maintain Good Credit.
“Credit is just as good as or better than money in the bank,” says Khalfani. Credit history can determine how much money someone can make as well as how much one will be able to save throughout their lifetime. A person with bad credit will not get the best deals in mortgages and other loans. Department store cards drag down a credit score, while buying a home improves it. Khalfani also warns that a potential employer can legally inspect your credit history to decide whether or not to offer you a job. “They consider it a reflection of your character, your reliability,” she explains. A current employer can also legally check your credit when considering whether to give you a promotion. “You should jealously guard your credit standing – from your cell phone bill to cable bill to doctor bill,” Khalfani cautions. “Pay your bills on time and don’t max out your credit cards.”
Don’t Live the “Bling Bling” Lifestyle.
“Anybody can bling, from the suburban soccer mom to the urban youth in the hood,” says Khalfani. “Most people spend way more than they earn.” Don’t buy anything you can’t truly afford on a cash basis.
Create a “Millionaire-in-Training” Budget.
Most people think of a budget as restrictive, signifying all the things they can’t have or do. They believe they have to stop doing the things they love. But the “millionaire-in-training” budget, Khalfani explains, allows you to spend money on three essential categories: something you truly need (rent, food); something you truly want (those shoes, that wide-screen television); something of value to you and your family (education). The only rule of this budget? You can’t spend more than you earn. “Your spending should be in alignment with your values,” says Khalfani. “You don’t want a budget where you can’t have any fun. Give yourself permission to have some fun, then spend money on things you truly value.”
Absolutely Do Not Buy a New Car.
“You are literally wasting money,” Khalfani says. A car, she points out, is a depreciating asset. The minute you buy a car and drive it off the lot, it starts to decline in value. Worse, a new car requires more costly insurance. A better strategy is to get a car that is a year or two older, but equally reliable. You’ll still have a great vehicle, but at less expense than a brand-new car. “Don’t let the car drive you to the poor house,” Khalfani warns.
Don’t Procrastinate When it Comes to Saving.
“Most graduates have age on their side, says Khalfani, and they can and should take advantage of their youth. The fact that you can leverage time with compounding interest is important. When you’re 21, 24, even 30 – it’s the time to save a little at a time. As little as $15 a week adds up significantly over the years.
Moore has started saving since she’s downsized her life. She now has a roommate to split rent and share utility bills. Relying on her land line phone, she no longer has huge cell-phone bills. And because she doesn’t have credit card bills, is now able to put money away in a savings account. She admits, however, that nowadays she doesn’t “get to shop like I want to.”
Bishop is on her way, too. She got a job as a production assistant and though she doesn’t have benefits, she lives with her mother to save money. Her advice to recent grads? “Save as much as you can. Make a plan. Don’t just sit on your thumbs. It’s not [enough] just to have a degree anymore,” Bishop urges.
And Rasheed is still pursuing her dream of working in the entertainment industry. “If you look at my bank balance, it may not be the most practical approach,” she says, though she’s calculated the lifestyle cost and found it worthwhile.
What’s truly important is that Rasheed, like Moore and Bishop, has learned many lessons on her journey to adult responsibility. Building wealth involves spending as well as saving, waiting as well as living right now. And as these women have seen, most important of all, it’s about saving before you spend.
Image courtesy of MyGovCost.org