Congratulations to the class of 2022! Whether it’s your child, grandchild, other family member or friend, you likely know someone who’s graduating soon. In case you get tapped to share a few words at their celebration, we decided to offer a few points that will start them out on a successful financial path.
Forget the “B-Word”.... But Remember to Pay Yourself First.
Everybody hates the “B-Word”.... budget. We hate it too. Almost two-thirds of Americans don’t know how much they spent last month, according to a 2020 survey by Intuit. For your graduate to avoid this, a common recommendation is to make a granular budget with line-byline spending goals for items like food, clothing, housing, entertainment, etc., and then follow it.
This is a great idea, but it’s hard to do. Instead, our suggestion is to remind your graduates to “pay them selves first”. If your graduate remembers to automatically take 20- 30% of their income and direct it towards improving their financial future (paying down debt, long-term investing, etc.), it doesn’t matter if they occasionally splurge on a bigger expenditure, like a trip.
Build Your Credit History.
Achieving and maintaining a healthy credit score will pay significant dividends down the line to your new grad. It will determine whether they’re approved for a car loan or mortgage, how much they’ll pay if they are approved, and possibly whether they’ll even be hired for some jobs! A few ways for them to keep that number up is for them to pay bills on time, get a credit card that they use occasionally and pay off immediately, and to regularly check reports from the Big Three to make sure there aren’t any errors and to correct them if there are any.
Invest Early and Often.
It’s never too early to start investing. In fact, investing early allows compound interest to work its magic longer. If your grad invests just $100 per month starting at age 25, assuming 7% interest, when they reach 65, they’ll have more than a quarter of a million dollars in their account. If they start investing a decade later, they’ll have to more than double their monthly investment to reach the same goal, and starting at 45 would require nearly 5x as much invested to have the same asset holdings at 65.
Best of luck to your graduates as they start their journeys!