What College Grads Need to Know

What College Grads Need to Know

For so many college students, after surviving four or more years of being just about broke all the time (except mysteriously on weekends where they seem to have an endless supply of funds), they just cannot wait to start getting their first real paychecks from their first real job. After having survived on just $6,000 per year the last few years, the anticipation of making $36,000+ per year is almost too good to be true. Instead of having just $500 per month, now they will have $3,000 per month to spend. That equates to a new High Definition LCD television, a new iPad and seven Xbox games per month. It is hard to imagine why mom and dad always act like they never have any money, when they make even more.

Paycheck Shock

Then the first paycheck arrives. Basic math says that two paychecks per month equates to $1,500 per paycheck, so why only $1,000? Where did the other $500 from your paycheck go? That means $1,000 per month is missing. There goes the iPad and the seven Xbox games. Once you start to make real money, you begin to pay some real taxes as well. You will pay federal and state taxes as well as Social Security and Medicare taxes. In addition, you will likely contribute towards your health insurance costs and put at least something towards your retirement account as well.

After getting through the initial shock of having your $3,000 monthly salary reduced to $2,000 you still realize that $2,000 is a lot of money. Of course, you are now on your own, so all of the bills are yours. You can expect your cable bill to cost nearly $100 if you want high-speed Internet, and add another $75 per month for your cell phone. Assuming car insurance of $100, and another $175 per month in gas, you are now left with just $1,000 per month. If you are fortunate enough to find a decent place to rent for $400 per month and you pay for your utilities of nearly $200 per month, you will now have $500 left over for food, dining out, and entertainment.

Wow, you are right back to where you were in college, with $500 per month. If you are like most college grads, maybe you feel that you deserve a new car or a nicer apartment since you worked so hard that last few years. But if you add a $350 car payment to the mix, you are now down to just $150 per month of spending money. Don’t forget to subtract any amount you will have to spend on credit card or student loan payments.

Good News for College Grads

Is there any good news for college grads? Yes, there is plenty. The key is to go into your situation with your eyes wide open, fully aware. You will have to make some real choices at this point. Do you need the advanced cable programming with high-speed Internet? Do you need the latest iPhone? Do you need a new car? Could you move in with a roommate to help split some of the costs? Remember, you cannot expect to start financially where your parents are today. They already paid their dues by starting at an entry-level job and living with entry-level expectations. It takes some time to get to where you want to go, but you will get there soon, as long as you do not hurt yourself financially by trying to borrow and overspend too much too early.

You can choose to live like a broke college student for one or two more years and save up some money and pay off some loans, or you can force yourself to live like a broke college student for the next ten by accumulating more debt now just to keep up a temporarily artificial lifestyle, beyond your means.

For more information, check out our book: The Graduate’s Guide to Life and Money

The Graduates Guide to Life and Money

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The three authors, Bill Pratt, Mark C. Weitzel, and Len Rhodes, are industry leaders in personal financial education. Together, they have a combined 75 years of experience in banking, economics, and entrepreneurship. Now, they teach thousands of students personal finance concepts and decision making skills, author textbooks and public press books on personal finance, and help schools develop innovative personal finance literacy programs. Recently, they were instrumental in developing a personal financial management certification program for leaders in higher education. The other books in The Money Professor series include The Graduate’s Guide to Life and Money and Extra Credit: The 7 Things Every College Student Needs to Know about Credit, Debt & Ca$h. Their books, lectures, and programs give students, parents, and educators the tools and knowledge to make good financial decisions all their lives.