Making enough money is just the beginning—then you have to manage it. Everyone, from recent college graduates to those well established in their careers, can reap the benefits of advancing their personal financial literacy.
Financial literacy is critical
Everyone knows that money can be hard. Making enough of it is just the beginning—then you have to manage it. Millennials have their share of money regrets, including credit card debt, lack of financial planning and, of course, the big one: college debt.
Now, many recent college graduates are also carrying significant educational debt into the next chapter of their lives. The national average for college debt sits around $37,000 per borrower. Respondents to a recent CollegeFinance survey had graduated with an average of $22,000 in student loan debt, have $14K left to pay and expect to complete repayment within six to seven years.
College debt affects more than just your financial outlook. Overall, 27% of the CollegeFinance respondents say their student loans made career changes difficult, including 36% of those owing $51,000 or more. Three in 10 say the same for taking a career risk, including 44% of those with $51,000 or more in outstanding student loan debt.
“Managing significant student loans brings additional levels of stress,” says Ryan McPherson, Director of Coaching at SmartPath. “This can be amplified if the recent graduate’s income is not commensurate with her/his required debt payments. Higher debt burdens may mean that graduates are taking longer to save up emergency funds and home down payments.”
5 tips to be smarter with money
Of course, it’s not just young people who could benefit from a little extra awareness in the area of personal finance. “As a whole, Americans could use additional money management education for different life events, e.g., handling student loans, buying a home, financially preparing for kids, paying taxes and planning for retirement,” says McPherson.
“Employers have the opportunity to help with this problem by incorporating financial wellness into their HR benefits packages to help educate their employees on money management skills,” he says. But workers shouldn’t wait for their employer to take the first steps toward better financial literacy. McPherson offers five quick-hit tips that college graduates—and the rest of us—can implement immediately to create a better financial future:
- Spend less than you make. Seriously. “This is the basis of any long-term financial success,” says McPherson. Of course, to spend less than what you make, you’ll need to keep track of both numbers. Budgeting software like Mint, YouNeedABudget and others can help you stay on top of your money.
- If your employer offers a retirement match, contribute enough to get the full match. “That’s free money—don’t miss out on it,” McPherson says. Even if you’re just launching your career, it’s never too early to start saving for retirement.
- Pay off your credit cards in full each statement cycle to avoid paying interest. “There’s no need to enrich the credit card company,” says McPherson. “It’s surprisingly easy for a $2,000–$3,000 credit card balance to become a $6,000–$9,000 problem. Compounding interest (which works wonders with investments) becomes your enemy with credit card balances.”
- Build up an emergency fund. Yes, surprise expenses will happen. “Start with one month of expenses and then build up to three to six months of expenses over time,” McPherson advises. Once again, budgeting tools can inform your planning by helping you determine what an average month looks like. You’ll also be able to anticipate lump expenses that only come around once or twice a year, so that when that bill does arrive, it’s not a surprise—or an emergency.
- If you have student loans, map out a strategy. “Will you be pursuing forgiveness or trying to pay off your loans ASAP?” McPherson asks. “Those loans won’t take care of themselves. Establish a paydown strategy and make it work for you.”
Resources to become more financially savvy
When it comes to personal finance, knowledge is power. “Start by reading as much as you can,” says McPherson, who recommends blogs like NerdWallet, Financial Samurai, Mr. Money Mustache, The Penny Hoarder and Millennial Money. “These cover the basics like creating a budget and smart ways to pay down credit card debt, and go all the way to advanced topics like investing in rental real estate.”
McPherson also has some book recommendations, including The Psychology of Money, Fuel: The Most Important Number in Your Financial Life (authored by SmartPath’s CEO/Co-Founder) and The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money.
“Some topics in these resources will interest you and others will be dreadfully boring,” says McPherson. “That’s ok, so long as you understand the basics. Dive deeper into what strikes you.”
SmartPath also offers a free online resource called the Money Moves Quiz where anyone can answer 15 questions about their current finances and receive an actionable plan tailored to their individual situation.
Investing in yourself
The pandemic has created extra challenges for younger workers who not only experienced higher unemployment rates, but also missed out on in-office mentoring, networking and training opportunities during the lockdowns. “While this might not immediately appear to be a financial challenge, it could impact career growth and opportunities for some,” McPherson notes.
Despite these challenges, CollegeFinance found that roughly 6 in 10 people continued making payments during the interest freeze period, among whom 86% were able to make progress on paying down their loans.
People will continue to experience financial stress even once the pandemic ends. “It’s a scary time for recent grads to be entering the ‘real world,’ so it’s more important than ever that employers provide financial wellness resources and support past open enrollment,” says McPherson. This can benefit both employer and employed, as surveys indicate that more employees would stay with their employer longer if they offered financial wellness benefits.
Money can be hard, but there are many tools and knowledge sources to make it just a little easier. Whatever point you’re at in your career, it always pays to invest time in your finances—and ultimately, in yourself.