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Seven Great Gifts for College Graduates

by Flexo on May 22, 2009

in Education, Family and Life

If there is a college graduate in your life, he or she is about to receive a number of gifts. The first gift will be the realization that it can be difficult to find a job in this economy right now if the goal is to get a job in the same field of study as the degree. Without a job, our graduate might have little choice but to move back in with mom and/or dad and weather through the recession with curfews as if life were to replay high school.

The next gift will be the shock of the real world in the form of a job. Suddenly the graduate will have to report to work, perhaps at 8:00 am. It might have been easy to blow off early morning classes, but consequences in college were limited compared to the thread of being fired in the first month on the job.

Soon after that, perhaps six months after graduation, the first student loan payment will be due, shackling the graduate into earning enough money to pay off college debt in ten or more years.

If there is a college graduate in your life this year, consider these graduation gift suggestions.

1. Free room and board. There is a time and place for the “sink or swim” mentality, which comes from the idea that throwing a baby into a pool will force it to instantly learn to swim in order to survive. I’ve never known anyone to take this literal approach, but in the current state of the economy you could do your graduate a favor by allowing her to start her career without having to worry about the first several rent checks.

Rent-free living should not last forever.

2. Clothing. Every job has expected attire, even if the environment is very casual. Professionals need professional clothing, whether for interviews or in the office. The graduate is going to need to project an image in the workplace, and clothing is important to making that happen. A gift certificate would work well for clothing, allowing the graduate to choose her attire, but some guidance may be necessary because not every graduate has experience in dressing appropriately for professional situations.

3. A computer. Powerful and reliable notebook computers are relatively inexpensive now. Remember to pre-load important software for someone who will be starting their first post-college job: financial management software. I use Quicken 2009, which is available on sale here, and I still prefer the robustness and flexibility of desktop software like Quicken over web-based financial management like Mint and Quicken Online

4. A gas gift card or monthly commuter pass. Transportation is one of the many expenses new workers have to pay up front before receiving their first pay check. If your graduate has a job lined up and a place to live, she should have determined her transportation needs.

5. A car. If you have the means, a used car would make a good gift for the graduate as well. It doesn’t have to be the latest model, but employers expect employees to have reliable transportation; a clunker that breaks down once a week and causes the new employee to be late arriving to the office will not make a good impression and will not do any favors for career advancement.

6. Cash. Money is helpful when wielded for the forces of good. If you trust the graduate to use the money responsibly, to pay down debt for example, cash can be a good way to go. But don’t give cash if you will be offended if the recipient chooses to use the money for vacation or entertainment. If you cannot give cash with no strings attached, don’t give cash — try a gift card.

7. The gift of mistakes. The last thing a graduate wants is to be told what choices to make. Some guidance is helpful, particularly in choosing the first job out of college, as many graduates do not know the effect this choice can have on earning potential for the rest of the graduate’s life. But let them make mistakes, and when they do, help them interpret them as learning opportunities.

If you are a parent of a graduate this year, what gifts, if any, will you be bestowing upon your graduates?

Students and former students, what gifts have you received or would you have liked to receive?

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Guide to Starting Your First Job

by Flexo on June 17, 2008

in Career and Work

A reader was kind enough to forward to me a helpful article published by the New York Times, guiding new graduates in the right direction as they take on their first real full-time job. Many graduates have had experience in the work force before, but it’s not until graduation when they can truly begin focusing on their careers and the benefits they provide.

While I wrote yesterday about general financial tips for college graduates, the New York Times article hones in on that first job so those in this position know what to expect and can make some of the right decisions about benefits.

In fact, health insurance ranks at the top of the importance ladder.

Health insurance is expensive. Employers generally pay for some or most of it, but usually not all. You’ll probably pay your share of the cost in at least two ways. First, your employer will probably take some money out of your paycheck regularly. This is called the premium. Then, there’s something called a deductible, where each year you have to pay at least the first couple of hundred dollars toward many kinds of medical expenses…

Thinking back to my first job, no information about insurance was explained to me with clarity. Like many others, I was able to determine the definition of terms like “premium” and “deductible” as I went along, but I could have benefited from some of this basic financial information at the outset.

The article also provides basic information about payroll taxes, or why you never seem to take home as much as you think you’re earning. PaycheckCity is a helpful website recommended by the editors that provides several basic calculators, a walk-through of the W-4 form, and some additional features if you’re willing to pay.

What about retirement? This is an issue that are far from the minds of many freshly minted graduates, but when you’re right out of college is the best time to start thinking about the distant future. Even in the face of bills the likes of which you’ve never dealt with before, the article suggests taking advantage of your company’s 401(k). The article suggests making this process easy:

…[C]onsider investing in something called a lifecycle or target-date fund, which is fast becoming a standard offering in retirement plans. These funds will have names like the 2050 fund, which correspond to the year when you’ll probably be thinking about retiring. Managers allocate the money (mostly in stock mutual funds now, though the investments get more conservative over time), and all you have to do is shovel more in.

Regardless of investment, the best thing about many 401(k) plans is the employer match, as I’ve mentioned earlier. Anyone fresh out of college should recognize the value of “free” money. (Sometimes there’s a catch, such as you have to work for the company a certain amount of years before the money actually becomes yours, but everyone knows that there’s no such thing as truly free money.)

A Primer for Young People Starting Their First Job, Ron Lieber, New York Times, June 14, 2008.

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Financial Tips for College Graduates

by Flexo on June 16, 2008

in Tips

College graduation like when you beat Ganon, the resilient bad guy at the end of the classic video game, The Legend of Zelda, for the first time. You’ve been through many levels of challenges, perhaps even used a few “cheats” along the way, and did anything necessary to grow your knowledge and skills, many of which were necessary for the final test of strength.

You’ve saved Princess Zelda and were rewarded by watching one final scene and reading the names of computer programmers as they parade up the screen. You were relieved that your journey was finally complete, but before long, you realized there was more to the game.

Suddenly, you were presented with the option to begin your next journey. Your character, Link, displayed a new sword to indicate the completion of the first journey. This newly brandished sword is like your degree. With your degree in hand, it’s time to face a new world, one that is uncharted. (The map to this “second” Zelda adventure did not come with the video game.)

After graduation, it may take a moment for some to realize that you are now in control of your life and the decisions you make can have a profound effect on your future. Here are some ideas to help you, the graduate, make solid financial decisions.

1. Actively manage your expectations. You may have friends who have already graduated. They’ve provided you with endless entertainment as they talk about the “real world.” By now, you will have heard about new cars, new houses, new weddings, new kids, new relocations, new implants, and new gardeners, and you’re looking forward to sharing similar experiences.

With jobs, they have been receiving a steady income, probably sizable, and have been spending their money almost as quickly as they have been earning it.

Actually, they have probably been spending their money faster than they have been earning it, but that piece of information will be curiously missing from their stories. What your friends didn’t tell you about is debt. Ask them about their retirement plan and IRA. Ask them about their budget. You’ll likely receive blank stares, and not just because you’re being a stick in the mud.

It’s best to ignore these types of stories because the danger comes when you expect that this is how one must live life as an adult. This is actually quite expensive and detrimental to your future. By managing your expectations, you won’t be disappointed when you can’t find a management position earning $100,000 with no experience right out of college, even if your friends tell you that’s what you should look for. You won’t be disappointed when you have to settle for sharing an apartment with several strangers or moving back in with your parents until you are able to afford your own bills and establish an emergency fund.

Simply, don’t try to keep up with the “Joneses.” This hypothetical family’s perceived wealth is mostly an illusion and it’s best to focus on yourself rather than others.

2. Choose your first job carefully. Your first job sets the tone for your future earning power, particularly if you expect to stay in the same career until retirement. Earning more in your first job out of college not only allows you to save more and be flexible with your budget, but it also makes it easier to negotiate better salaries when future opportunities arise.

That being said, don’t select your first job with money as the solitary driver. It’s quite possible that the path you’ve chosen starts out without much opportunity. If the job that interests you is not in high demand, then you will have to settle for what is available. Like a professor told me as I was pursuing music education in college, “If there’s any other career that could possibly make you happy, consider changing majors.” If you are pursuing your calling, be prepared for a bumpy ride as you progress, mentally, physically, emotionally, and financially.

3. Pay off debt. Many college graduates leave school with credit card debt. While in school, education is your first priority, so depending on your course load’s aggressiveness, you may not have had a job. However, you still had expenses, and your parents may not have provided for you. This is perfectly normal, but it must be attended to immediately.

Unless you are starting in an industry where image is important, it’s time to pay down your debt. With newfound income due to your first job, put any available funds into paying off your credit card balances, and do not add new credit card debt under any circumstances. The debt avalanche is the most mathematically pleasing solution to paying off credit card debt.

Chances are you have student loans to pay off as well. Consolidate these when possible to take advantage of lower rates, but don’t slow down your repayment. You may decide to get your master’s degree, and it’s best to do so without compounding more student loan debt.

4. Automate your savings. Automation is the key to creating habits without having to change your behavior much. If you have a new job and your employer is somewhat familiar with twenty-first century technology, they will have direct deposit available. This will allow you to deposit your paycheck directly into a checking or savings account (and a high-yield savings account is preferable).

From the savings account, you can decide how much you need for spending money each week and how much you need to pay your bills each month. Transfer only what you need and leave the rest in the account earning interest. Work with your bank to create instructions for these transfers so they take place automatically.

This is probably the biggest component of building an emergency fund.

5. Investing basics: Open an IRA and 401(k). Once you’ve automated your savings and are in control of your bills, you may have noticed you have money left over. Rather than buying a new car for $4,000 down and monthly payments of $300, you started with a used car for $8,000. With your saved payments, you can open a Roth IRA to take advantage of what will probably the lowest interest bracket you’ll ever be in.

If your employer offers a 401(k) or its cousin the 403(b), take advantage of this option as soon as possible. In many cases, companies offer “employer matching” contributions; for example, for every $1.00 you contribute, your company may thrown in an extra $0.50, you to one-eighth of your salary. This is free money, and you should accept it without question. Invest in your 401(k) at least to the limit of your employer match.

Your 401(k) may have some confusing options. If an index fund is available, that should be your first choice. Otherwise, your company may offer an automatic rebalancing plan based on your age or years until retirement, or a mutual fund that does the same. That may be a good choice for the novice investor.

6. Develop a plan, but be flexible. Your friends’ stories were missing something. While they spoke of all the exciting things they are buying and doing, they didn’t mention to you where they’d like to be in 5, 10, 25, or 40 years. Perhaps they have some vision of what their future might hold, but they don’t have a plan, something that will explain how they will get to that point.

If you haven’t already, decide where you want to be with your life in the short-term and the long-term. Think about not just the size of your bank account, but about all aspects of your life. For each goal, determine what you will need for its achievement. This doesn’t have to be exact, and without much experience in the workplace, you shouldn’t expect it to be.

Now that you have your plan, expect obstacles preventing you from reaching your goals, but also expect things that will require you to change your expectations, much like the first point above. It is said that people fall in love when they least expect it. Suddenly your own plans must incorporate someone else’s. It’s important to be flexible, because life has a habit of finding its own course.

7. You only live once. It’s important to think about the future and make the wisest financial decisions. But this is your life, and it’s the only one you get. Balance your future plans with making the most out of today’s experiences. Remember that money isn’t the most important thing in the world, but it does let you do some amazing things.

This article is part of the Money Blog Network group writing project for June, focusing on graduation. Here are some participating articles: Welcome to the Real World, Pay Yourself First, My Money Advice, A Fully-Funded Roth IRA, Graduates Might Be Shocked and Four Tips for Recent Graduates.

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