Yesterday I attended our commencement ceremonies. I was fortunate to be one of the commencement readers and got to say the names of my students as they walked across the stage. The end of the semester and commencement are always very sad times for me. Not only because I will miss the students in my classes, but it is the realization that I may never see many of my favorite people again. After four to five years of getting to know these remarkable young people I come to feel that they are almost like surrogate children to me and I know that many of my colleagues feel the same way.
I constantly joke with my students to not be like me. Avoid the mistakes I made financially when I left college.
Last night I was actually talking with a couple of my students, giving them some life advice, and I thought I would memorialize it for all my students and frankly for all new college graduates in general. Take it for what you will, but I know what a millstone student loans can be. I know what it is like to feel like you started late in life. I know what is like to feel like you don’t know what you want to do with you life. Hopefully this will help some of my past, present, and future students.
Advice for College Graduates
First, it is ok to not know what you want to do. Just because you graduate with a college degree does not mean that you will know what you want to do with the rest of your life. In fact, that will change. You will move. You will fall in love. You will get promoted. God forbid some tragedy might happen in your family. It is ok to not know exactly what you will do. In fact, there might not be that perfect job or perfect environment. Sometimes you need to work to live, not live to work. In other words, your job is a means to an end. If you love to travel maybe you need to work more to go to Europe or be like a lot of people in the personal finance world: attempt to retire early. It can be done.
Second, attempt to get an internship before your professional career. Now some of my students who have graduated may look at this and think I am crazy. They are like “but I graduated how can I get an internship.” A lot of my students were working as they went to school. Most of them had at least one or two jobs and didn’t have time for internships. My advice to you now is if you didn’t take the next six months and find an internship/apprenticeship where you could work with someone or a company in your chosen field. A lot of internships aren’t necessarily based upon whether you are enrolled in school, but rather if you want to work in that industry. Explaining your situation will probably allow that employer to hire you on for a short internship like 3-4 months. Then you can make larger decisions about your work life and careers.
Third, be flexible in your job search. A lot of my students, unfortunately, are very provincial in their thinking. They feel like they can’t leave their families or their hometown or the closest metropolitan area (Boston) because they are afraid of what is out there. You need to break that mindset. You need to go where opportunities may take you. And if that opportunity takes you to another state or another country be open to it. Your hometown will always be there. You can always come back. Be open to possibilities. I mean you are 22-24 years old, most likely you have nothing holding you here (unless you have kids/spouse). Get the heck out of here. Explore. Even if you don’t like it you find out what you don’t like. Most people will change paths in their careers at least 5-7 times. In other words, you might stay in the same line of work, but you will probably explore different areas. Mrs. ROB is on career path #5. Considering the “gig” economy is something more and more people are exploring don’t be surprised if you change career paths.
Fourth, live like a college student and avoid lifestyle inflation. This is one thing I didn’t do when I got out of college, even though I was a graduate student. Most of my students will have student loan debt. As most people know we have a student loan crisis in America of 1.3 trillion dollars in debt and the average graduate has about $35000. When I graduated way back when I had about $12000 when I left my undergraduate program (about $24000 today), which would be under the norm today. Instead of trying to pay it off scorched earth I took out other loans even though I had my schooling paid for because I felt like I deserved a lifestyle. I had worked hard, graduated, and worked while I was in school. Now that I was a college graduate and somewhat of a professional I deserved to go out with my friends to bars and vacations and the like.
AVOID THAT MENTALITY! Like like a college student for the first 3-5 years you get out of school. For example, when I was in college I didn’t cook much and I still can’t. However, I had my meals planned around happy hour in my college town. In other words, I knew where free food was every night of the week if I just bought a drink. Now I don’t recommend you totally eat unhealthy food, but the idea was that I couldn’t afford to go out to restaurants so I supplemented it with free food at happy hour and made it a social event with my friends. I would recommend you all do the same. I don’t know why I stopped doing that when I went to graduate school.
One of the things many students want to buy when they get their first job is a new car. Don’t DO IT! Avoid buying a new car like the plague, even when you have money.
Why buy something that goes down in value? No keep driving the car you had in college. Drive something cheap. Who cares if it isn’t the best? Would you rather put your money into an inanimate object or experiences? Don’t get into the mentality that you DESERVE a new car. You don’t deserve anything. You haven’t earned it yet. When you have your debt paid off and are earning a decent salary, saved some money for retirement, then maybe buy a new car. Until then the answer is NO! (I have never bought a new car by the way….ever).
Fifth, pay your student loans off as fast as possible. Most students when you graduate from college have a six month grace period to start paying on their loans, unless you go to graduate school, the peace corps or some other experience. During that six months I don’t care what kind of job you have I want you to save up as much money as you can and drop a huge first payment on those loans. If you have $30,000 in student loans try to save up to $1500-$2000 for that first payment.
Your payment plan, if it is the standard one, will be 10 years and the payments on $30,000 will be about $333 per month. That is about what a car payment is nowadays. I don’t want you to have student loans for 10 years. I want you to be paid off in 5. I want you to be scorched earth. Don’t be like me.
I ended up leaving grad school with $97000 in student loan debt and in the 10 years I have been paying them off I still owe $62000. It is only now after paying off more debt and writing this blog that I am going to try to be scorched earth over the next couple of years.
Even though I am on the debt loan forgiveness program I want these bad boys gone. I would even sell my house if I could get enough equity to pay them off.
Get rid of those loans they are a MILLSTONE AROUND YOUR NECK!
Sixth, look into consolidating and/or refinancing your student loan debt. A lot of students, like myself, will have multiple loans spread across different agencies. If you can I would look into consolidating your student loans into one loan if it will bring you a lower interest rate. However, there are two caveats:
- You can’t consolidate public federal loans with private ones.
- You can only consolidate once. So if interest rates become cheaper or if you went back and got more loans that had a cheaper interest rate you cannot consolidate for a cheaper rate.
However, if you do end up consolidating your loans and you don’t look like the interest rate I might look into refinancing them with other agencies like SoFI. SoFI and other socially financed lenders are actually generating a lot of interest among people because they act like a bank, but aren’t necessarily one. SoFI is financed by private capital. It is, in some respects, like peer-to-peer lending although that is not a very good analogy. Check this review out from Nerd Wallet for more information. You might get better rates with a place like SoFI.
However, there are caveats with a place like SoFI as well.
- If you choose SoFI to refinance your loans you CANNOT write off the student loan interest on your taxes.
- If you choose SoFI you CANNOT go back to the government to consolidate your loans again.
So think long and hard about what you want to do, but PAY THOSE LOANS OFF FAST NO MATTER WHO YOU ARE WITH.
And if you apply to graduate school you don’t necessarily need student loans to go.
Seventh, you need an emergency fund. Think of an emergency fund like insurance. You don’t know if you will ever need it, but it is a piece of mind if you got sick or you get into an accident. Mrs. ROB and I will have a bit of a tight summer financially. I wish my emergency fund was bigger. At the very least save for what I call the “Four Walls” emergency fund.
I know a lot of 22 year olds who think they are bullet proof. I will never lose my job. I can always get another, etc. However, it will rain sometime in your life. You need an umbrella. You need an emergency fund. The rain will come. Make sure you are prepared when it does.
Finally, PAY YOURSELF FIRST. The number #1 financial rule all of my students and everyone should adopt is PAY YOURSELF FIRST. What that means is that you have to save for retirement. Most professional employers offer a retirement plan (e.g. 401k, 403b, TSP, etc). You should contribute at the very least up to the employer match (if there is one). In other words if you put in 3% they put in 3%. I mean if you don’t do that you are basically losing FREE money. That is just dumb if you don’t do it. Why give up free money? I am mandated to put in 11% of my salary for a 4.3% match (wish it was higher). But I would put in more if I could (and I do with a separate account).
If your employer doesn’t have a retirement plan or you start your own business or our an independent contractor then at the very least open up a ROTH or Traditional IRA. You can contribute up to $5500 per year.
That position of FU money is what I want for all of my students. It won’t happen over night. It will take some time. But compound interest is your friend. Start early, save often and you will get there before you know it. Here is a chart that some of you might like.
And this modified scene from the movie The Gambler basically sums up what I want for all of you.
Check out the actual scene from the movie here. I like Jim Collins’ version better.
The Bottom Line: I wish nothing but the best for my students whether they are past, present, and future. I hope you make your lives extraordinary. I hope you make a great difference in the lives of others. I hope you have amazing futures with children, spouses, great careers. I hope you help others that need it because we need more people like that in this world.
I hope that this commencement season and the past for my students has been truly a beginning that will lead you in some fantastic journeys.