It’s graduation season again. If you’re entering the workforce—or know someone else who is—here are four ideas to help jump-start your financial life:
1. Managing debt: If you’re like most people, you may have student loans. And depending on how much you owe, you may be wondering how best to allocate your new paycheck. Should you direct every available dollar toward your loans or does it make sense to also begin saving while you’re still working on your loans? While everyone’s situation is unique, I’d suggest these two steps:
First, take the time to really understand your student loans. Don’t just pay the amount shown on your statements. Instead, look at them holistically, considering the rate and balance on each one, then design a payment strategy to maximize the benefit of each payment. You could also consider refinancing with a private lender. But before you do that, I’d learn about the government’s Income-Driven Repayment Plans. If this all sounds a little bit like a root canal, you could hire a student loan consultant who will review your statements and show you exactly what to do. These consultants don’t charge a lot and could end up saving you quite a bit.
Second, don’t put savings on hold. Even though your debt load may feel overwhelming—and it may be at rates higher than you could earn on your savings—it’s important to build a financial cushion. This will give you flexibility and allow you to think longer term. And it will help you avoid turning to high interest rate loans if you ever find yourself in a pinch. Most importantly, it will get you in the habit of living on less than you earn.
More broadly, try to avoid putting your life on hold because of student loan debt. This is an increasingly common phenomenon. But by making a plan, you’ll be able to sleep better at night and move forward with your life.
2. Choosing an employer: When choosing where to work, look beyond the salary. Yes, your pay rate is important, but many employers offer valuable benefits that aren’t obvious at first glance. When considering job offers, look closely at the retirement plan(s). Do they offer a traditional pension? If not, what does their 401(k) or 403(b) look like? Do they match contributions? If so, at what rate? If you’re going to work for a public company, will you receive stock options or restricted stock units? What other benefits are available—graduate school tuition, for example? And what does the company’s health plan look like? All of these could make an enormous difference, so be sure to choose a job based on your true, total compensation.
3. Working productively: One of the odd things about school is that they never teach you much about how to work. Yes, you learn lots of information, but rarely does anyone teach you how to succeed in the workplace. There are lots of theories on productivity, and I don’t necessarily endorse one over the other. Rather, I suggest reading widely to discover an approach that works best for you. In fact, the following four books are a useful starting point because they’re each full of great ideas but don’t necessarily agree with one another: Grit by Angela Duckworth; Outliers by Malcolm Gladwell; Range by David Epstein; and Atomic Habits by James Clear. If you don’t have time for an entire book, then I suggest this one article: Smarter, Not Harder by Shane Parrish.
4. Avoiding “advisors”: At some point in the future, I predict, one of your classmates will find his or her way into the insurance industry. And one day that person will find their way to your doorstep. They will explain to you how it’s in your best interest to buy something called whole (or variable or universal) life insurance. My advice: Run, don’t walk, in the other direction. In my work as a financial planner, I have seen innumerable people saddled with policies that provide too little coverage for too much money. In all but the rarest of cases, I don’t think anyone should ever buy one of these products. According to one well known financial blogger, upwards of 75% of people who buy these policies end up regretting the decision. If you need life insurance, in the vast majority of cases, you’ll be better off with simple, low cost term coverage.
