Essential Money Lessons for Recent Grads
I've always thought it absurd that the U.S. doesn't require some sort of basic financial literacy course before students can graduate from high school. Sending unprepared young adults into the world of mortgages, credit, car loans, payday lenders, and student debt is a bit like sending lambs to the slaughter. For those just starting in the world of independent money management, there are few essential lessons that will help avert the worst disasters. (See also: 21 Personal Finance Lessons From Harry Potter)
The list below is by no means comprehensive, but it's a good roadmap for young people to begin their financial trek.
Learn, Learn, and Learn
Learning how to manage money, save, and invest isn't the dark art that most experts would have us believe. So much good information is available from reputable sources both online and offline. Learn good savings strategies from sites like this one or the basics of investing from Wise Bread, The Motley Fool, or Kiplinger. Understand your risk tolerances, stay curious about how to maximize returns on your savings, and advocate for your own financial future.
Know Thyself
It's nearly impossible to understand our financial weaknesses and combat them without first knowing ourselves. What negative financial triggers do you have? Trouble budgeting? A bad shoe habit? A failure to hold on to cash when you have it? Realize your proclivities, and, if you can't change them, reorganize your life to lessen their effect.
Use Credit — Don't Be Used by It
Unfortunately, it's nearly impossible to function in modern life without using credit and having a healthy credit history. But there's a big difference between leveraging the power of credit tactically from time-to-time and falling prey to it permanently. Use credit selectively to build your credit history or for free short-term loans (i.e., paying off your credit cards in full at the end of each billing cycle and not incurring one cent in interest charges). Never embrace the use of credit so liberally that the interest alone keeps you in a constant state of servitude.
Pay Attention
Money is a social construct — its power is driven by people and shaped by the events in our world. The closer you keep your ear to the ground, the better chance you'll have of hearing the faint rumblings of economic turbulence or financial opportunity.
Talk About Money
We live in an age of full disclosure; still, we seldom talk about money. It's this silence that keeps people from coming clean about their financial realities, learning, sharing advice, and strategizing together. Get over it. Remove the social taboo about money talk by being more open with trusted friends. You might be surprised how universal your struggles are and how valuable and motivating your successes can be to others.
Get Strategic
Most of us know we need to save, but we seldom really consider what we're saving for or what our specific goals are. As a young person, ask yourself, "What do I want to accomplish financially by the time I'm 30? 40? What kind of retirement do I want to have and what should I be doing right now to make that more likely?" Write your goals down and document each step of the strategies that will get you there — there's real power in documenting your plan and referring to it often as your financial life evolves.
Save With Gusto
Once you know your short-term and long-term plans, you're ready to save with abandon. Saving earlier usually means ending up with more later on. Young savers, even those who squirrel away quite modest sums take advantage of a longer time horizon and get a serious jump start on late-comers. Of course, saving more now involves living within your means and delaying gratification — a discipline that's hard won for young and old alike. Start by scaling back on two or three spending categories in your life (maybe clothing or travel) and redirect that money into an IRA or 401(k) plan.
The world of money is constantly changing, but the essential rules of the game tend to stay the same. Understand where you want to end up and decide how you're going to get there (and remember, winning the lottery is a dream, not a strategy). Learn what you can as soon as you can and stay rigorously disciplined about saving and investing. Once you have a few successes under your belt, don't be afraid to talk about what you've learned and pass your knowledge on.
How did you learn your most valuable financial lessons? Was it through careful training or messy trial and error? What's the most important piece of advice that you'd give those just starting out?
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Really great points! Parents should be teaching their children this stuff, but even they don't all know what all is involved. Should definitely be a required course in high school.
I am still learning the basics of finance and I think in a way, as the economy changes, we will always continue to learn about finances and adjust accordingly. I agree that it is important to write down long term goals, but I think the problem is not that we aren't making goals, but that we don't know what those goals need to be. Young people don't fully understand how much money they will need in the end and this delays saving.
Even though I had a background in finance and my first job as a new grad was as a financial analyst for a bank, I still had a lot to learn. Sharing (but not oversharing) with friends is definitely a great way to navigate new situations and note that your struggles are similar to others.
One of the biggest (and most difficult) lessons for me was that new grads are not all on a level playing field; many had parents helping them out and those folks rarely seemed to struggle financially. On the upside, after you get established and acquire the basics (like a work wardrobe and furniture), saving for the future becomes easier.
Yes, I totally agree, as a 2nd year university student I've learnt alot throughout this past year re financing and credit scoring. I got into some financial difficulties and unfortunately I couldn't ask my parents for assistance so I decided to take out a car title loan, which turned out for the best, really! Now I'm doing my best in planning the monthly spending, going into all the small expenses, and even managing to save a bit :)