Money, Career And Life Advice For The Graduating Class Of 2020
Both the high school and college Class of 2020 are graduating into a moment of unprecedented crisis and uncertainty, marked by systemic failures, human suffering and economic damage.
During tumultuous times, it can be hard for many graduates to make plans for the future. So many aspects of everyday life have been suddenly cast into doubt in ways that previous graduating classes did not have to imagine: Will college campuses reopen in the fall? Will your job offer still be there? Will your dream career field still exist?
Fortunately, there are some timeless pieces of advice—for your money, your career and your life—that the Class of 2020 can still use to guide your decisions, even in these unusual times. No matter what happens next with the stock market, your college or career plans, or the economy in general, this advice should serve you well.
Pay Yourself First
As soon as you start your first real job after graduation, it’s important to pay yourself first by putting money into savings from each paycheck, before you let yourself pay other bills or spend money on activities or purchases. Save before you spend.
Automate your savings so you can immediately put money into your savings account without having to think about it, without having to decide with every paycheck that saving is a priority for you.
The coronavirus global pandemic and the resulting economic crisis that is following it have been a stark reminder of how important it is to have a decent amount of emergency savings, available in cash.
Build an emergency savings fund: Over time, try to save enough money to cover three to six months of living expenses, and keep that money in the bank in an FDIC-insured account (or NCUA-insured, in the case of a credit union) that you can access at any time.
Paying yourself first should be a bedrock principle for your financial life. Hopefully you’ll discover that saving money can be just as fun as spending it. Having cash in the bank can give you financial peace of mind. Knowing that your expenses will be manageable—even in the event of an emergency—can help you to navigate life’s ups and downs with greater calm and confidence. It all starts with paying yourself first, every month, with every paycheck.
Live Within Your Means
If you’re graduating from college in 2020, chances are you have gotten used to living like a college student—maybe you have roommates, are living with your parents or other relatives, or you have spent the past few years living in a dorm or in a fraternity or sorority house.
You also are entering a changed job market, due to COVID-19. When you get your first real paycheck, it can be tempting to go out into the world and start living a more expensive lifestyle, with a new car, your own apartment, new clothes, a full social calendar of dinners out with friends—not to say that you can’t have these things, but it may take more time.
Your first job’s take-home pay may not stretch as far as you think. It could be smart to try to keep living like a college student for a few more years. For example:
- Don’t buy an expensive car; get by with an older (cheaper) model for the first few years of your career. Or try to live close enough to work to be able to walk or bike. With the right social distancing, public transit also is an option.
- Keep saving money on housing costs by living with roommates.
- Learn to cook, instead of paying for takeout five nights a week.
- Jog or bike in the park, where it also may be easier to social distance, instead of paying for an expensive and underused gym membership.
- With the emphasis on staying safe during COVID-19, host casual board game nights at home with family or a few friends, instead of spending big money on bar tabs.
Know exactly how much money is coming into your household every month and how much is going out. Designing a simple budget can help you stay on top of your expenses.
Making just a few basic decisions can help keep your young-graduate lifestyle from getting bigger than your first-job paycheck. By saving money on small things in everyday life, you can stay focused on your big-picture life goals.
Develop Good Credit Habits
Credit cards can be useful for your personal finances, but credit card debt doesn’t have to be part of your life. If you want to use credit cards, it’s important to understand how they work and how to avoid getting into financial trouble.
Credit Card Interest Rates Are High
Credit cards are one of the highest-interest forms of debt that an average person can have. If you don’t pay off your credit card balance in full each month, you have to pay interest on the amount that you carry. For example, even the best credit cards right now are charging variable interest rates of up to 22.99% or more. Carrying a balance becomes very expensive very fast, when you consider that even a high-yield savings account pays you interest at a rate that’s closer to 1.30%.
Credit Cards Can Be Helpful Tools
If used carefully and correctly, credit cards can help your personal finances in a few important ways:
- Build your credit. Using credit cards responsibly and paying your bills on time can help you build a credit history, improve your credit score and qualify for other types of loans like car loans and home mortgages with a lower interest rate in the future.
- Become a “points” person. Some credit cards offer great rewards to help you save money on travel or earn cash back on everyday purchases. Some people have made a hobby out of maximizing their credit card reward points to travel the world for free, sometimes in luxury.
- Manage your month-to-month cash flow. Credit cards can give you some extra time to pay for a major purchase. For example, if you wanted to buy a new TV or pay for a vacation, you could buy it today with your credit card, and then pay it off next month when your credit card bill is due. Or you can even take advantage of a 0% APR credit card offer to avoid paying interest for a limited time.
Avoid Carrying Credit Card Debt
Credit card debt can grow very quickly. If you’re not careful, you could be paying the price for years to come. Recent credit card debt surveys have found that 44% of Americans are carrying a balance on their credit cards, and total U.S. credit card debt has reached $930 billion. While credit cards can play a valuable role in your financial plan, don’t make a habit of living off your cards or using credit cards to live beyond your means, or you’ll pay for it in the future.
You don’t have to be afraid to have a credit card, but you need to be ready to use your credit card responsibly. Beware of the possible risks and downsides of racking up too much credit card debt. Instead, make your credit cards work for you.
Keep Learning, Take Chances, Actively Manage Your Career
Every job, every stage of your career, is a chance to keep learning marketable skills. Don't take a job just for the money, take a job for what you can learn from it. Be ready to try new things, take calculated risks with your career and be willing to test the waters.
Especially since you’re graduating into an uncertain job market, this can be an opportunity to try something that you might never have considered. What needs are you seeing in your own community? Could you serve in AmeriCorps? Could you start your own business or be a freelancer or start a side hustle to make extra money?
Even before the COVID-19 crisis, many young graduates were less interested than previous generations had been in the idea of climbing a traditional corporate career ladder. Today, some of the most successful people create their own career paths, which may include diverse roles in corporate, nonprofit and public service—and whether as an employee or as their own boss.
A career that starts at age 22 (or even earlier) is going to last a very long time. When the Bureau of Labor Statistics studied young boomers, it found they were likely to have 12 or more jobs between the ages of 18 and 52, and Millennials are already getting their own reputation for changing jobs frequently. With longer life expectancies, the traditional retirement age of 65 may or may not apply. Also, with the speed of technological change, several jobs you may have later in your career do not even exist yet.
Start Saving For Retirement and Learn to Invest
It may sound strange to talk about retirement when your life as a working adult has hardly even begun, but it matters: New graduates need to know how to start saving for retirement.
As a young person who’s just starting out in life, you have the advantage of having time on your side. Every dollar you save today has that much longer to grow, thanks to the magic of compounding interest. The money you save today may turn out to be worth a lot more to you in the future; the more you save now, the better off you’ll be later in life. Give your money time to grow.
Here are a few key retirement and investing strategies:
- Start contributing immediately to a retirement plan. As soon as you have your first real job with a real paycheck, you should start contributing to a retirement plan. Your employer may offer a 401(k) plan, and, if not, you should consider opening your own individual retirement account (IRA). Compounding interest means that the longer you let your retirement savings grow, the bigger your nest egg will get.
- Don’t wait until after you pay off your student loans. Even if you have student loans, you should still save for retirement every month, while paying down other debts. Why? Again, it comes down to compounding returns. Beginning to save for retirement just a few years earlier can have an exponential impact on the growth of your retirement savings over the long term. Go ahead and get started, even if you have to begin by saving only a little and paying off proportionally a lot more in loans every month.
- Max out your employer match. Many employers match your 401(k) contributions to help you save for retirement. For example, if you save 5% of your pretax income in your 401(k), your company might match 50% of that amount. This “free money” is a major job benefit, and you need to ensure you’ve set your plan contribution rate high enough to take full advantage of it.
- Open a brokerage account and learn how to invest. Markets have seen some huge ups and downs recently, which might make you want to stay far away from the world of investing. But no matter what the stock market is doing today, you should understand that investing is a long-term game. Over approximately the last 90 years, U.S. stocks have returned an average of 10% a year—as periods of irrational enthusiasm and steep, sickening declines tend to cancel each other out. Learning about investing will help you optimize your retirement strategy, and investing on your own in a brokerage account is a great way to help leverage your savings game overall.
Retirement may sound as if it’s a long way off, and it might seem hard to imagine retiring when you’re still trying to land your first job. But as soon as you have a steady income, start saving for retirement and investing for the future. Your future self will thank you.
Practice ‘CPR’: Community, Purpose and Resilience
The Class of 2020 is graduating into a time of unprecedented crisis and challenges. But this generation of people also has some unique strengths to navigate these times. To build a successful career and a happy life, try to focus on the concepts of “CPR”: Community, Purpose and Resilience.
Be community builders. Try to build relationships with good people and organize people for common goals. Relationships are hugely important for your career (and life) success. Your old friends and classmates from college likely will turn out to be valuable contacts across your career. Every boss or co-worker from your first job can potentially turn out to be helpful to you later in your life.
Get active on LinkedIn, keep in touch with your favorite people from college and become a relationship builder and connector in your career and personal lives.
People matter more than money. If you had to choose between the two extremes of “saving every dollar you ever made, but having no friends” and “spending every dollar you ever had, but having lots of people who love you,” it’s better to have more people and less money in your life. (But hopefully you can find a healthy balance: plenty of good relationships and enough money to be comfortable.)
Find a sense of purpose in your work and your life. People who have a sense of mission tend to be more focused and productive; find your "why" for what you're doing in your career. Some people are happier and more fulfilled doing work that pays less, but that means more to them. Sometimes people get what they believe to be their dream job and then realize that it’s not as meaningful as they thought.
There’s an old saying that “money can’t buy happiness,” and it’s true; once you make enough money to be comfortable, additional money doesn’t always make you feel better. No matter how much money you make, keep searching for meaning and building authentic connections, throughout your life.
The big buzzword of the business world for the next few years is likely to be resilience, along with reinvention. Companies and organizations and countries need to build more resilience into the way they operate. People and households need better financial resilience: more cash in the bank, less debt, more frugality, better risk management.
What does this mean for your career and your money? It means: Personal resilience is important too, now more than ever. Cultivate a spirit of agility and calm. Companies are going to be more likely to hire people who have good interpersonal skills, who are flexible and adaptable, who are willing to learn and who are eager to grow to meet the challenges ahead.
The future is uncertain, but that has always been true. The COVID-19 crisis is not the first severe crisis that people have faced, and it won’t be the last. Regardless of what happens with the stock market or the unemployment rate for the rest of 2020 or 2021, the world of the future needs community builders, leaders and creators of positive change. Is it possible that, if you can get through this coronavirus pandemic, you can get through anything?
Congratulations to the Class of 2020. May you have a long and happy life of community, purpose and resilience.
The mission of Next Steps Navigation is helping college graduates navigate the ups and downs of finding their place in the world, by finding their right next step. Recognizing the huge gap between getting a college degree and the realities of entering the workforce, we developed our coaching program to help families navigate this critical transition. We’ll meet you where you are and get you pointed in the right direction to choose a job – and a life – that you love.