Wednesday, May 16, 2007

What I Wish I'd Known About Money When I Graduated

It's that time of year, and it means that I'm no longer the most recent class of college graduates (this eliminates some of the power of the "but I just got out of college!" excuse, alas).

So I'm thinking about the financial mistakes I made as I tried to set up my life, and the things that I learned from them. Here are some things I blew:

1. I put money in a CD.
It seemed like a really good idea to me to put $1,000 of my hard-earned campus-job money into a CD the summer after graduation, to ensure that I'd still have it a year later. And I do, so, points for that. However, I really botched the interest rate, because I bought the CD through my bank, and the interest rate on a CD at a brick-and-mortar bank is not only lower than you can get on a CD through an online bank, it's lower than the interest rate I earn on my liquid savings at ING. No good. Check out Bankrate for the latest rates.

2. I was reluctant to put my money in an online bank.
It took me a long time to be willing to dip my toes into the world of online banking, and that cost me a better interest rate on that aforementioned thousand bucks. It's not that scary, really, though, and the interest rate is great. We're the internet generation: go for it.

3. I set up my housing from far away and by proxy.
I was in touch with my boyfriend by phone as he and our current roommate hunted for an apartment--and it was profoundly logistically difficult. In addition to the money I spent having things notarized and FedExing them (both of which would have been unnecessary had I been proximate), I ended up overpaying my portion of the initial costs (broker's fee, first/last, deposit, &c.). Technically, this just means that the guys I live with owe me money, but actually, I never expect to see that thousand bucks again. This would never have happened if I'd been there to write the check myself, as opposed to having to ask my father to access an account on my behalf and send a check.

...and here are some things I did a good job of:

1. Taking it slow on the startup costs.
Though getting into my apartment blew a big chunk of money, I did a good job of minimizing the cost of starting my life as a grownup. I bought some work clothes & shoes, but kept it minimal. I took hand-me-down kitchenware and asked for housewares for Christmas and my birthday. I limited my initial furniture outlay to a bedframe (bought from, split with my boyfriend) and a couch (bought at Macy's home sale, split three ways). K and I have only just gotten around to putting up shelves, and we are just now planning on going shopping for a dresser (actually, that one I'd recommend you do right away). We use a dining-room table that K inherited from a previous roommate and mismatched chairs. And our friends still think our apartment is great. You don't have to leap into grown-up-dom with a living room set and color-coordinated everything and a credit card bill to match.

2. Making friends with my Roth IRA.
This is such a good account for young people, and I think everyone should have one. It's especially valuable for those new grads who start out in hourly jobs, or other jobs without benefits (including not-for-profit jobs where there's no employer match in the 403b). I'm really pleased that I prioritized contributing to my Roth, and I'd advise that everyone do so, even if it's only a few bucks a month (indeed, there are companies that will let you open the Roth with very low or no minimums).

3. Starting off on the right foot.
It's way, way, way easier to learn to live on a smaller amount of money than it is to start out living on your full salary and then trying to start saving. I saved from my very first paycheck, which helped mitigate the feelings of deprivation. (Subsequent increases in saving and giving have been far more noticeable.)

4. Being eager to learn.
The best thing, hands down, that I did for my finances after graduation was devote myself to learning how they work. That's why this blog exists. The prospect of opening a retirement account, say, is really, really daunting--even just the logistics of it. The how and where remain mysteries even after you grasp the why. Again: the internet is great for this stuff. I pretty much just read everything I could get my hands on, and now I know enough about the basics of financial planning that I pretty much feel comfortable making my financial choices.

I think that last one is really the most important--if you're trying to learn and figure things out, you probably won't make the worst decision even if you don't make the best. The easiest way to botch your finances is to ignore them, so a little effort goes a long way.

Good luck, class of '07!


plonkee said...

"you probably won't make the worst decision even if you don't make the best"

is probably some of the best advice in the world

Krystal said...

I think so many grads get into financial trouble because they want to "live like a grown-up" and buy all the things they had to deprive themselves of while they were in school.

I think your approach in spending very little for startup costs is the right way to go. It's better to have mismatched furniture and a clear credit card bill IMO. :)

mOOm said...

I still don't have a dresser :)

Olga said...

thank you very much for this post! it will take me two more years to graduate but your advice is very helpful anyway. i liked the piece about "Starting off on the right foot." it really encourages me in my desire to start early... and on the right foot. :)

Sam said...

I also won't be graduating for another two years, but I'll definitely add this to my list of articles to consult again when the big day comes.

ps said...

Great post. Really good advice.
I am glad you've already set up a retirement account. So many of us young people make that mistake of ignoring our retirement needs. I know we are just starting out, but we still need to make the future secure. That's the best way to do it. And the best to do it would be now. The more time you give your money to grow, the more compound interest magic you'll see. Right?

I am just 21, but I already have a retirement account. My friends laugh at the fact that I do. And I'd never ever have the courage to admit it in public. I don't have much to contribute really, probably something like $30/mo. I am in school and have a part-time job. But I am happy that I do.

tysqui said...

I won't graduate for another year, but I'm bookmarking this post until then. Great ideas.

CBus said...

Not just a random spam... I have a TV, stereo, bedroom furniture, car ramps, golf caddy, over-the-door shoe rack, jeans, desk, kitchen table, and entertainment center all free from freecycle. One man's junk... Additionally, freecycle is a good place to find baby supplies (old bottles, pumps, diapers that no longer fit, clothes, strollers, playscapes, etc...)

You know the last day of school when everyone has 5 hours to get out of their dorms. Perfectly good ironing boards, lamps, school supplies, etc overflow the dumpster. Drop by a local college/nearby apts and do some glorified dumpster diving. Chances are, you'll not even need to go in the dumpster.

Finally, pregame. Get a DD, hit the liquor store, and start the party at home. Or, even more financially beneficial, only party 6 of the 7 days of the week ; ) I know I couldnt really afford to buy everyone shots, but I did bc my friends were too. Come to find out, they bought because I did. Its a viscious cycle.

3 Things About Money said...

Great advice for anyone making a Big Life Change actually.

The furniture thing is so right. When I first started grad school, after depriving myself for undergrad I still really wanted matching furniture but couldn't afford the good stuff so I bought matching crud and it fell apart.

Now I am on the one really good piece at a time program, and I love the furniture I have and am saving for stuff I don't have. Anyway, great advice.

Damien Riley said...

You're so young. At 38 I can tell you that finding a job you love to do and retire at it the most valuable advice ever. Money, CD's, savings, financial "goals" and tracking widgets, don't mean a hoot of nothin' unless you're happy goin to work everyday. That's what I wish I knew when I graduated as an English major in 1995. Thankfully, I have found my thing teaching 4th grade.

AMIT said...

Oh nice sharing about this topic.Good post.

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