Straight out of college, you are full of hopes, dreams and potential. Retirement, mortgages, disability insurance, etc. are alien worries that don't even cross your radar. However, it's the steps you take today that will secure your financial future tomorrow.
At 37 -- young enough to recover from financial mistakes, yet old enough to realize that financial security is not just going to happen -- here is some advice I wish I'd adhered to some 15 years ago.
The Job Quandary
In my opinion, many people "fall" into a job. That is, they accept the first decent paying position out of school. If it's not something they're particularly crazy about, they surmise they'll take this until they figure out what it is they really want to do. (Note: I own an editorial staffing agency, and have seen this pattern repeated often).
Usually, the demanding responsibilities of rent, student loans, credit cards, etc. take over, making it hard to focus on what recent graduates really want to do. After three, five, seven years in a field, it becomes more difficult to move into a different area because it often means a salary cut. At this point, however, a salary cut is often out of the question because of the above-mentioned responsibilities. It evolves into a vicious cycle.
So, how can you make sure this doesn't happen to you? I'll share with you what I've learned. It's up to you to decide if your dream is important enough to follow the advice given.
1. Make your dream one of your top three priorities. The mistake many make is putting their dreams on the back burner, e.g., "I'll focus on [you fill in the blank], when I pay off that student loan, once I get that promotion, etc."
There will always be something that can get in the way, if you let it. If you really want to own your own business, travel more, be a writer, work from home, whatever it is, you have to make it a priority. Otherwise it will always remain just that, a dream. And, there is no better time to go all out than when you have little or responsibilities -- i.e., children, a mortgage, etc.
If you have supportive parents, all the better. Stay at home after graduation if they allow it. Pay rent, of course. After all, you are an adult now. But, living at home for a year or two after graduation can give you the extra funds you need to finance your dream.
2. Manage debt. Massive debt limits the ability to make life changes. This is perhaps the single most important piece of advice you will ever receive regarding finances.
Most people are forced into having to make a certain salary because they've become accustomed to a certain lifestyle. Let's face it, most of us work to live. Our lives dictate to us, not the other way around. Look at all the pressing demands in your life. Outside of keeping a roof over your head, putting food on the table, saving for retirement and health insurance, how much do you really need to survive?
The only debt you should have right out of college is student loans. And, you usually don't have to start paying them until six months after graduation. Sadly, credit card debt is so easy to get into. According to a 2001 Nellie Mae survey of credit card use among undergraduates, the average credit card balance for undergraduates was $2,327.
This survey illustrates that most graduates start out in debt, and go on to carry it for the rest of their lives. How do you immunize yourself against this?
First, make debt a bad word. Avoid it at all costs until you are ready to commit to the bigger things in life (a mortgage, for example). This means outright buying a car instead of making payments; paying cash when you eat out and go shopping; living at home, in a smaller apartment, or getting roommates so that high rent doesn't force you to charge the other things in life. Always, always, always practice living within your means. If you can't afford to pay it off at the end of the month, then you shouldn't be charging it -- period.
I live in New York City, one of the most expensive cities in the world. New Yorkers have a running joke that you spend $20 just walking out the front door -- and it's practically true. Yet, in the last seven years, I've managed to build two businesses, work from home and basically plan my days to suit my needs, instead of having them planned for me.
There are street vendors who sell the most beautiful baubles: jewelry, African art, sunglasses, shirts, books, CDs (the illegal ones of excellent quality for $5!); restaurants and coffee bars litter almost every corner; oh-so-convenient bodegas; and we won't talk about the large Salvation Army in my neighborhood that should be renamed in my honor.
In spite of all this temptation right out my door, I rarely spend $5 during the week -- really! How do I manage? Two things help: 1) I grocery shop once a week and once a week only; and 2) I use my ATM card once a week to take out cash for the weekend on Fridays. No exceptions.
I guarantee you, if you start making smart money choices now, you’d be amazed at the choices it will allow you later on in life.
3. Invest and save: Securing your dream is not about how much you make, but how much you save. No matter how paltry your salary in the beginning, get in the habit of investing and saving a percentage of it each and every time you receive a paycheck.
If your employer offers automatic deposit into a savings account, let them take it before you ever see it. What you don't see, you won't miss. This way, even if you spend every other dime you make, you won't have to feel guilty because you've socked away funds from the get go.
A second part of this equation is to participate in your employer's 401K plan. If they offer to match your contribution, put in as much as you can. This is free money. Matching is when your employer contributes to your retirement account a percentage of what you contribute. Some employers offer a 100% match. For example, if you put in $25, they put in $25. This is FREE MONEY -- and you'd be surprised at how fast it grows. This is a dying phenomenon. If you are lucky enough to be employed by a company that contributes to a retirement plan, sign up as soon as possible AND contribute as much as possible.
Do this for 25 years, and you might be able to retire in your late 40s or early 50s instead of waiting until 67, the current retirement age where you can take full benefits.
Starting early has another benefit as well. It ingrains a habit. Achieving any goal -- weight loss, financial success, a degree -- is about time and consistency. If you consistently, over time, take proven steps toward a goal, you will achieve it. Make your dream, hence the steps you take toward it, a habit.
Although you may not be able to live your dream right away, taking these steps will allow you to start realizing it today!
Yuwanda Black is a serial entrepreneur, author and syndicated small business columnist whose focus is teaching others how to control their destiny through small business ownership. Visit her on the Web at http://www.EntrepreDoer.biz for a complete list of how-to, small business books and articles.© 2003 Yuwanda Black
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