A new batch of graduates will soon begin the difficult transition from college student to becoming self-sufficient. From securing employment that pays well enough to address student loan debt to handling the financial responsibilities that come with living independently, there are many challenges that lie ahead. While many new graduates will choose a path of financial discipline and security others will make unfortunate missteps due to a lack of proper planning or unforeseen financial circumstances that may arise.
The early years following graduation present an opportunity for parents and their children to work together to develop and lay a financial foundation that may assist young graduates throughout their life.
Develop a life-plan
The first step when developing a strategy for new grads often begins by establishing life goals. What are the student's passions in life? Where do they want to live and work while developing their career? What are their short, intermediate and long-term personal, professional and family goals? Whether starting a business or your independent life, it is advisable to have a written plan that can be re-visited at least annually, thus enabling new grads to "Live life by design, not by default."
One important piece of good news for graduates looking to jump-start the development of a career is that the job market is the brightest it has been in years. In fact, according to the National Association of Colleges and Employers, companies are planning to hire 9.6 percent more college graduates this year than they did in 2014.
Additionally, nearly two-thirds of employers were planning to increase starting salaries for bachelor's degree recipients, up from the 2014 average of $48,700.
While it may be difficult to decide which career path to choose, new grads should consider speaking to others within the field they are considering in order to assess the opportunities that exist. Networking through LinkedIn and other social media can be a great way to establish new introductions and contacts when pursuing a new career. Keep in mind, there is a big difference between a job and a career - extra care should be taken by new graduates to delineate between the two.
Establish a no-debt policy
After establishing goals for the future and securing a new position in their desired field, new graduates should then consider developing their financial game-plan and money personality. It is common for people to have differing views and attitudes about money and savings. Improving financial literacy and taking financial responsibility seriously can help new graduates stay on track for the goals that are most important to them.
It may also be beneficial to review basic financial concepts that are often overlooked. Specifically, it is important for anyone earning a paycheck, especially new graduates, to understand the difference between what they make and what they keep. It is quite common for young people to think all of their salary is available to spend. When their net income is suddenly 25-percent less due to various deductions including taxes, additional debt can pile up within their first year of working. Establishing a no-debt policy early on can help ensure new graduates avoid getting comfortable with the concept of debt.
Address existing student loans
Speaking of debt, it is critical for graduates to develop financial strategies to deal with student loan repayments while also determining the level of cash flow necessary to move out and live independently. This can be quite difficult as some students end up with more debt than the average homeowner has on their mortgage. Budget tools found on www.mint.com and other sites can help graduates determine their "breakeven point" when budgeting and working toward goals.
Build reserves and retirement funds
From moving out and purchasing automobiles to buying a home and getting married, there are many life events on the horizon which require substantial amounts of savings or reserves. It may be a good idea for graduates to place cash reserves near the top of the priority list immediately following graduation. Remember, financial emergencies can arise at any time.
New graduates should also remember that planning for retirement is not only for their parents. The sooner young people get started thinking about the future, the better. While it may not be the first priority, care should be taken to take full advantage of any employer provided matching contributions to 401(k)s, simple plans or other retirement plans. Unfortunately, many workers often overlook this free money opportunity.
Additionally, Roth IRAs which may allow for first time home buying withdrawal options should be considered too. With so few graduates having access to pensions, the responsibility falls squarely on their shoulders to think about and plan for their future.
Invest early and often
The sooner new graduates discover the difference between saving and investing, the better. It is not uncommon for young people to shy away from risk. In fact, according to a Capital One ShareBuilder survey, Ninety-three percent of millennials say that distrust of markets and lack of investing knowledge makes them less confident about investing. Improving a graduate's knowledge of the benefits of investing can pay dividends over a life time.
Despite the difficulties faced by new graduates, a proactive approach to life planning may help the class of 2015 get off to a strong start. Since each graduates situation is unique, consider speaking to your tax and financial adviser to determine the best approach for you.
Kurt J. Rossi, MBA is a Certified Financial Planner, Practitioner & Wealth Adviser. He can be reached for questions at 732-280-7550, kurt.rossi@Independentwm.com or www.Independentwm.com. LPL Financial Member FINRA/SIPC.