If you’re graduating from high school and college and embarking on getting your first job, you’re going to start developing an important relationship—between you and money. New grads--It's important to understand the top two money tips!
In this episode, we give our top two pieces of advice for new graduates. It’s the advice that we’ve seen gets you 80% of the way there on your finances—
1. Save 10% of your income
2. And don’t get into credit card debt.
This seems simple, but it’s not that easy! Doing these two things means you need to develop some skills to figure this out. You’ve just graduated—you have the skills to do that. You know how to add and subtract and plan. That’s what this will take. But you can do it. Now’s your chance to take what you’ve learned and apply it.
When you first get a job, you’ve got all the money in the world. We encourage you to set aside 10% of your income for permanent savings.
That helps your finances, but it also helps you live sustainably. That means that you’re not over-taxing your resources and can go on this way over the long term. Your anxiety level will be lower than people who don’t save and your financial prospects will brighten.
This works well for people who make more and for people who make less. Save 10% of your income.
Credit cards can make life more convenient, but they can help you overspend, too. If you want to keep things simple, just pay them off every month. That means you need to plan your spending and figure out how to do that.
TRANSCRIPT
John: With graduation season upon us, what advice do you give to a college graduate? That's what we're going to talk about on this episode of Friends Talk Financial Planning. Hi, I'm John Scherer and I run a fee-only financial planning practice in Middleton, Wisconsin.
Bridget: And I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois. John, you just mentioned College graduates, but I think this is good for high school graduates, particularly if you're not going on to college, too. So what are your thoughts there? What do you tell people?
John: Yeah. No, that's great…
Bridget: Going out into the world. What do you tell people?
John: It's on – college is on my mind because my goddaughter is having a graduation party coming up. So I'm thinking about that. But you're exactly right. It's like, listen, when you're moving on to the next stage in your life and going to work, what do you do?
Bridget: Right.
John: And for me, there's basically two things, and it circles back to for us, the five fundamentals of fiscal fitness that we both follow as part of our involvement with the alliance of comprehensive planners. And on my list, when I do it, it's always number one and number five. The first one is save 10% of your income into permanent savings. And by permanent, I mean, not saving for a car, not saving for a vacation, but things that are going to be in your savings account: 401K, 403B in your bank account for the rest of your life. So that's number one, save 10%.
And number two is don't get into credit card debt, avoid consumer debt. And it sounds really simple. But if you do those two things, I swear that's 80 to 90% of the game. So those are the two big takeaways in a nutshell for me, does that resonate with you or what you talk about with people?
Bridget: Well I look at it from two different levels, too. So it's good financial management. So it works on that level. But the other level it works on is I think it helps people stay engaged with their finances. And I think it's also a key to living sustainably. So if you are doing these things, you're living within your earnings, which is a sustainable situation for yourself. So I think it ties into some other things that people are often looking for, which is, how do I get engaged with this and being intentional and engaged and contributing to the overall environment and living sustainably, just like you recycle. Why do I recycle? Well, it helps me live sustainably. And as I've gone through my life, we've gotten better and better about this. I think that most people admit we have a long way to go, but it helps.
John: That's a great thing, that part of the greater good, right. And by doing good for yourself.
Bridget: Yeah.
John: I tell you, one thing that I think about with this whole topic because it's got to be so confusing and complicated feeling for somebody; you're getting out high school or getting out of college – now you're going, you got a job, right? It's great. And I've got money and all these things to think about. Now, you’ve got to think about taxes, and I’ve got to think about saving and rent or mortgage, all these different things. And really, the advantage of it for me is boiling it down, right?
Bridget: Right.
John: These things are not complicated. Save 10% of your income, don't spend more than you make and don't take on credit card that you can't pay off. But they're incredibly difficult as well. So many things that are meaningful; you don't have to know about all the investment types and all the…you don't need to be a tax expert. You don't need to do all those things. If you just save 10% of your income and don't go into credit card debt that you can't pay off every month, that those basics really apply.
And on a similar level, I'll just share one thing that I talk about with people when I talk with my God daughter was graduating is when you come out of school, you're making no money. Right? And if you get a job making whatever you're making, 40,000, 50,000 a year, whatever it is, it's like all the money in the world, I go from zero to “Oh, this is great.” Well, if my job is at 50,000 dollars, it's all the money in the world. If it's at 45,000, it's still all the money in the world compared to last year. And saving that 10% at 5,000 dollars. If I start with that habit, you just get used to it over time. If I start spending all my income, and now at some point, I say “Holy Moly, I better start taking care of my financial situation, and I've got to cut 10% out of my budget.” Boy, that is a much harder thing to do. It's so much easier to start at that level and develop that habit, than it is to go back the other direction. And you and I both have folks all the time in their 20s, 30s, 40s that need to start cutting out of their budget and golly, that's tough.
Bridget: Yeah, exactly. The other thing I want to mention is that I've seen this work well with artists even, people that aren't making that much. If they have this mentality, it works over the long term. The other thing I would say is that if I had to pick one, people say I can only do one of these. I would say save 10%.
John: Yeah.
Bridget: Because I have seen people that they save 10%, they just knock it away in their 401K, and they always get credit card debt. But the 401K, it's like it can be the little engine that could they've invested it in anything, even in the target date fund. And if they just keep doing that, I have seen people where it really works just doing that works.
John: The other thing you reminded me of – one thing I wanted to say before we wrap up here is when we talk about that 10%. For me anyway, when you start off save 5% in like a Bank account savings account, that's going to be my long term savings, my security blanket and 5% into the 401K or company IRA that retirement plan you put it in.
Bridget: That’s a great idea.
John: And then after a few years, 3-4-5 years now we got a nice little pot of money in my savings account. Then I can take all 10% and put it into my retirement plan.
Bridget: Right.
John: As a comment on that is I do tell people split it up; half into just permanent savings and half into long term retirement investing.
Bridget: The other thing is that if people want to save more, that's totally fine. You can save more. But most people that I talk to want to strike the balance between enjoying now and being set for the future, too. And so that's what the 10% really allows you to do. But if you want to save more, that's great. The other thing is that you might say “I can save more now”…and you're not committing to that for the rest of your life. So sometimes people can save more now, but then they save less in the future. That's fine, too. That's a great way to get going, too.
John: Right, super point that those are kind of minimums like that's the baseline that we're talking about with that. And that's maybe a great way to wrap up and circle back. That the two big things advice sound like for both of us, for college grads, are save at least 10% of your income and don't go into credit card debt, and you're going to be in really good shape.
Bridget: Great! With that, let's wrap it up. I’m Bridget Sullivan Mermel. And I've got a fee-only financial planning practice in Chicago, and I'm with John Scherer. He's got a fee-only financial planning practice in Middleton, Wisconsin. The name of our show is Friends Talk Financial Planning. And there's two things we like to mention at the end of the show. One is we're both members of ACP or the Alliance of Comprehensive Planners. If you're interested in the way that we talk about money and you're looking for a fee-only planner, ACP is a great place to look, and you can find them at ACPlanners.org.
John: And the other thing is to make sure to subscribe to the channel; that helps other people find us and helps raise our awareness so that we can get the message out to more people that we can help. With that, thanks Bridget.
Bridget: Thanks John.
At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.