Congratulations, graduates! You've successfully completed your school days and are ready to enter the real world. To quote Monica from Friends (opens in new tab), "It sucks. You're gonna love it."
Leaving behind the stresses of term papers and final exams, you're bound for an onslaught of new challenges—many of which will be money-related. In order to face them all head on and achieve financial independence, consider these five pieces of advice from smart financial experts, who are all contributors to the Kiplinger Wealth Creation Channel.
1. Carefully consider your career path.
With a degree in hand, you probably have an idea of what field you'll be working in. Hopefully, you even have your first job lined up. End of story? Hardly. Only the beginning.
You need to think now about where you want to be in a year, five years and ten years from now. Career paths, like life, don’t always go according to plan. Expect to change directions many times.
And be sure your expectations are realistic. You can find loads of data on median incomes and the level of demand for certain jobs, as well as information on the skills and experience typically required to climb the ladder. Beyond the data, be sure to consider your own passions; without a genuine interest in your work, your career path is likely to be a slow and painful ride.
Financial adviser Bradford M. Pine began this planning process with his daughter when she was a sophomore in college when she was declaring her major:
"For all the data analysis, it's also important to keep in mind that a low unemployment rate and a high average salary still don't guarantee a well-paying job, a satisfying job or a job at all. So we took all this information and used it to help Abby think about what she enjoys and finds interesting—without losing track of the economic forces at work.
For each subject she took an interest in, we encouraged her to explore the possible career paths involved and think about the question, 'What can I really do with this major?'"
For more from Pine, see Help Get Your College Grad Out of Your House and Into a Job.
2. Prepare to live below your means.
If you haven't ever had a household budget, from now on, it is a must. In order to control your finances, you simply have to know how much is coming in and how much is going out, as well as where it all goes. Basic math will tell you, in order to stay ahead, your income must always exceed your outlays. Otherwise, you're destined for a life filled with debt.
Financial adviser Pete Woodring says: "Many young people are tempted to chase a desired lifestyle before they have secured their financial future. [You] need to distinguish early on between needs and wants, and be willing to make the necessary choices according to a strict budget."
For more from Woodring, see 4 Money Lessons for NFL Draft Picks—and New College Grads.
3. Make sure you have a student loan repayment plan.
Debt might already be an unavoidable part of your finances. In fact, according to the Institute for College Access and Success (opens in new tab), about 69% of college seniors who graduated in 2014 had student-loan debt averaging $28,950 per indebted person.
You need to figure out your repayment plan and incorporate it into your budget. Financial planner Marguerita M. Cheng explains: "According to studentaid.ed.gov (opens in new tab), recent grads have several options for repaying their student loans. Ignoring the situation is not one of them. Even if you can't make a payment, you have to deal with it responsibly and devise a strategy to repay it when you can. There are options such as lowering the monthly payment or applying for a deferment or forbearance, which stops the student loan bill for a determined amount of time."
For more from Cheng, see 6 Smart and Simple Money Tips for New Grads.
4. Start investing.
It might seem ridiculous. Where are you going to get that kind of money to put on Wall Street? But investing can be much simpler than you might think. And the sooner you get started, the more time you have for your money to grow. You’ll also learn from and recover from any mistakes you might make along the way.
You might want to hint to your parents, your parents' friends and your relatives that stocks might make a nice graduation gift. Money expert Vita Nelson recommends giving new grads a portfolio of stocks to congratulate them on their achievement. Or you can come up with a portfolio yourself.
She writes: "If you're looking for a graduation gift that will make a lasting statement, consider giving a portfolio of high-quality, dividend-paying stocks. This gift can result in a value of hundreds of thousands (or possibly millions) of dollars, over the long term. But yes, you can afford it!
You just need to build the portfolio using companies that offer direct investing through dividend reinvestment plans (DRIPs). Your gift is a single share of the company stock and enrollment in the company DRIP. As a DRIP investor, the gift recipient will be able to accumulate and compound wealth with remarkable results over the long term."
For Nelson's specific stock recommendations see, 5 Dividend-Paying Stocks to Give New Grads.
5. Understand your risk tolerance
What's that, you say? You need to understand what risks you face in your financial situation, and figure out what level of risk you can accept and how to deal with it.
Financial planner Russ Hill explains: "Risk management is important throughout life and is frequently not given its due—particularly for those in their 'invincible' 20s and 30s. During those years, kicking the getting-serious-about-my-finances can down the road can seem like a reasonably safe bet. Younger adults often put off saving for the future—not least those who are saddled with daunting college loans.
Yet in the constellation of personal financial risks, longevity risk—the risk of running out of money before the end of life—is huge. For the average person, for example, this poses a much greater risk than market risk. Every Millennial should have a plan for addressing it. As a nation, we are living longer and longer. For the last decade and more, with growing alarm, I've been tracking statistics on what future U.S. retirees are setting aside. These statistics reflect a shrinking number of people who can safely anticipate a financially secure retirement."
For more from Hill, see 3 Things You Must Know to Be Financially Literate.
Rapacon joined Kiplinger in October 2007 as a reporter with Kiplinger's Personal Finance magazine and became an online editor for Kiplinger.com in June 2010. She previously served as editor of the "Starting Out" column, focusing on personal finance advice for people in their twenties and thirties.
Before joining Kiplinger, Rapacon worked as a senior research associate at b2b publishing house Judy Diamond Associates. She holds a B.A. degree in English from the George Washington University.
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