You’ve Graduated! Welcome to Reality 101

Though he is among the earliest of those in the Millennial generation- individuals born from 1982 through 1997- and is now older  than 30- David Weliver is the creator and editor of the website MoneyUnder30.com.

He speaks from first-hand experience when he says that finding a source of income, i.e. work, has got to be Priority #1 once you graduate. “If you don’t have a job lined up right out of college, you need to focus on your career search.”

In addition, he says you should take time to “project what your life is going to look like in 6 months. Because that’s when the grace period ends and student loan re-payment begins.”

The Dreaded “B” Word

Going from a poor college student to earning a regular salary can make you feel as if you’ve just hit the lottery.  But Weliver offers an older-brother word of caution: “You have to figure out what your actual take-home pay will be.”  That is, how much do you have left to spend after taxes and potential retirement contributions are taken out?

The next step is to “forecast what your expenses will look like and use this to plan your first year in the Real World.  For instance, you might be tempted to buy a new car.  But you need to think about the fact that each payment is going to take away from money you have for everything else.

Though he tries to avoid using the word, Weliver admits that, yes, he is advising that you rough out what your “budget” is- an exercise that can make people mentally shut down no matter what their age.

He learned the importance of this the hard way.  “I was so eager to have a place of my own I got an apartment by myself.  It cost more than I should have been paying.”   Weliver soon discovered that having your own private space but no extra money for fun, isn’t, well, fun.  He went back to living with roommates and cut his rent in half.

What if you don’t have a job waiting when you graduate?  Weliver’s view is that “there’s no shame in moving back with mom and dad while you get on your feet.”  He maintains that the 2008-09 recession removed the stigma from this.  (Of course, Mom and Dad also have to be open to the idea.)

The Comparison Trap

It can be a hard lesson to learn, but once you graduate, you and your former college buddies might end up in totally different financial circumstances.

For example, say you and your roommate both graduates with a degree in math. You became a high school teacher and your friend landed a job in investment banking.  As Weliver points out, the difference in your salaries is likely to be significant.  “You can’t try to keep up.  Can’t afford it. This can present a difficult situation.”

For instance, your old roomie is going to the Caribbean for vacation and begs you to go.  It’ll be a blast!  Just like old times.  She isn’t thinking about the salary differential.  She just wants to hang out with you again.

The problem is you can’t afford it.  Is it worth maxing out your credit card so you can go, knowing you will struggle to pay it off later?  Or do you admit you can’t swing it on your teacher’s salary and wish her a good time?

As Weliver points out, “It happens.”  And it can hurt.  You need to be emotionally prepared.

The Monkey on Your Back

“Student loan debt is the #1 issue,” most new graduates face, according to Weliver.  Making the minimum monthly payment might be your only choice.  But depending upon the amount you borrowed, this approach can make the process drag on for decades.  “The reality is you need to get used to the idea of delaying marriage, having kids or buying a home because you might not be able to get a mortgage” because of this outstanding debt.  He also points out that “bankruptcy doesn’t discharge student loans.  You really just have to earn more money.”

That’s the approach Weliver, himself, took.  After graduating, in addition to a full-time job, he worked evenings and on weekends “to pay down my debt faster and get back on track before I was 30.”  He admits that, “For two years I didn’t have a life."

Now in his early 30s, married, a father and a homeowner, he’s glad he did it.  While he knows it’s not for everyone, Weliver says, “I’ve never met anyone who paid off their debt early and regretted it.”

Piling on More Debt

What if a bachelor’s degree is not be enough to land you the job of your dreams?  Is graduate school really worth it?

“No one ever wants to hear this, but you’ve got to crunch the numbers,” says Weliver.  “See what you’ll be earning with this degree.”  The reality is that you need to consider how much your student loan payments will be when you finally graduate and compare this to the salary you’re likely to earn.  Ask yourself if it really makes economic sense.

With some careers, such as those in the medical field, getting an advanced degree has a big price tag but the salary can make it worthwhile, assuming you chose the right specialty.  On the other hand, Weliver says he’s heard from people facing $200,000 student loans who are employed as social workers. “My advice?  Find another line of work.”

You Need a Safety Net

While making at least the minimum payment on your student loans is important, Weliver cautions against going overboard.  You need to be saving some money every paycheck so that you can build up a Just-in-Case account.  (Yes, your parents would probably call this an “emergency fund.”)  Aim for gradually building this account up to at least a couple of thousand dollars.

This stash of cash is off-limits except for emergencies.  Your car needs a set of tires.  You have an unexpected medical bill.  A relative is ill and you want to fly home to see them.  You get the idea.  This is not “mad money” that you can dip into for a weekend out of town or to cover your credit card bill.

Not having an emergency fund is “dangerous,” says Weliver.  It leads you to max out your credit cards, which leads to an additional payment every month that you probably can’t afford.

The New Credit Mindset

Though barely over 30, Weliver sounds like an old-timer when he talks about the more optimistic good ol’ days: “When I graduated from college credit was still flowing freely.  There was still this mentality that it would double in value. Don’t worry about money because you’ll get a good job.”

He maintains that the younger half of his generation have a totally different mindset.  “The recession changed young people’s relationship to money and their understanding about not going into debt.”  Some saw what happened when neighbors, relatives or their own parents lost jobs. Homes were repossessed.  Stock prices tanked and, though they have since more than recovered, retirement account balances were hard-hit.

Even if didn’t actually affect their family “there was so much media attention that young people in their teens or in college at the time absorbed it.”

The result, says Weliver, is that “younger Millennials are more conservative with their money.  A lot are scared of investing and the stock market. That becomes a problem when they land their first job and are faced with making a decision about how to invest their 401(k).”

Next week: how to think small, but start saving as soon as possible.