Graduates: Know What You Want out of Life
Sometimes when people talk about finances, they get too caught up in the numbers. I have a tendency to do the same, since I am a numbers person. After all, what can be more objective than a spreadsheet that calculates how much you need to save, or what percentage of your income you should be spending in each budget category?
Left to our own device, we can justify just about anything (“I’ll start saving next year,” or “I’ll charge it to the credit card since I have a low introductory rate.”). That is why we need objective advice – especially advice for college graduates. But that is all it is, advice. In most cases we all need objective advice when dealing with our finances, but we are not objects. We are people and we need some subjective, personal direction as well.
I could tell you that you should save 10% of what you earn towards retirement, and I may be exactly right. But what I don’t know, without asking you first, is what your retirement plans are. Maybe you want to retire by age 45, so you will need to save more. Perhaps you stand to inherit money or want to retire much later in life so you may not need to save as much. The point is you have to first decide what you want for your life.
Advice for College Graduates
Along the way you are going to hear advice from many of the experts (‘Pay off your highest interest rate loans first’), your family (‘Buy the biggest house you can afford’), your friends (‘I have this great stock tip that will beat the market’) and of course sales people (‘If you lease instead of purchase, you can get a better car for the same monthly payments’). What you have to be able to do is figure out when they are giving you sound advice, and when you need to tune them out.
For many of us our parents just went along with whatever society told them they should do. They had a thirty-year mortgage that lasted thirty years. They bought an expensive car and spent four or five years paying it off, so that they could get another expensive car and start over. They relied on their pension benefits from work or from social security for their retirement. They were really the first generation fully integrated into “buy now, pay later.” For many of our parents they are still paying. They are still stretching out their mortgage. They are refinancing their credit cards into their mortgage, only to charge up their credit balances again.
Are you a low-risk or high-risk person? If you like to take risks, you will probably gravitate towards being a spender and borrowing for your current needs or putting your money into hot stocks or trying your hand at leveraged real estate. If you avoid risks at all costs you will probably shy away from borrowing, but will also keep your money in a local bank account that earns less interest than inflation.
You have to assess who you are in order to make the best decision according to your circumstances, and at the same time, understand that your personality may influence you strongly towards or away from risk. You will receive plenty of advice for college graduates along the way. But once you understand your personality and how it relates to money, you will be better prepared to handle the one person most likely to talk you into spending large amounts of money irrationally throughout your life – You!
For more information, check out our book: The Graduate’s Guide to Life and Money