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The Money-Guy 2011 Commencement Address

Money-Guy 05-12-2011

With graduation rapidly approaching for many college students, The Wall Street Journal just announced that the Class of 2011 will graduate with more debt than any class before!  In today’s show, we address common money mistakes that new alumni make and our guidance for new grads as well as anyone going through a major life change.

If you’ve checked out our Facebook page recently, you may have already read the article that inspired today’s podcast, 7 Biggest Money Mistakes College Grads Make.  In the article, Kimberly Palmer tackles the seven most frequent financial missteps of college graduates and ways to avoid them.  Here is our take on her advice:

1.   Taking on too much debt – or not enough.  Acquiring too much debt means that more of your money ends up allocated to interest and fees rather than reaching long-term goals.  The real life example that I use to dissuade people from biting off more debt than they can chew involves a college buddy of mine who did just that.  Upon graduating from Auburn University and scoring a well-paying job, this friend immediately ran out and financed a bright red T-Top Camaro.  He failed to realize, however, that the monthly insurance cost would outweigh the car payment itself.  Unable to really afford what he owed, he had to trade in his dream car for an old Acura clunker that eventually caught fire mid-roadtrip.  Within six months, this guy had gone from the top of the food chain amongst our group of friends to the bottom, all due to his rush to take on more debt than he was truly capable of handling.

On the flip side, the current generation has let the recent recession convince them that all debt is evil, so they tend to avoid it altogether.  Failing to take on any debt can be a costly mistake as well, considering that most future investments (i.e. homes, auto loans, etc.) will require established credit history.  Our advice is to start early by responsibly maintaining a student credit card while still in school.  Just remember to always pay off any balances monthly so that your debt becomes a tool working for you rather than against you. This practice and record of sensible debt management will make it that much easier once you enter the “real world”.

2.  Becoming victim to rapid lifestyle inflation.  To most people, an increase in income equals a promotion for their lifestyle as well.  What I have found over the years, however, is that the easiest way to lose the shiny, cool factor of an item is to own it.  Just because the pool tables and 60-inch televisions suddenly seem more affordable, this doesn’t necessarily mean that you need them, or even want them.  Kimberly’s advice in the article is a great idea.  Don’t blow your first paycheck on a complete home remodel.  By spreading out purchases over time, you can evaluate which items are actually important to you and worth the money.

3.  Falling into bad money habits.  The temptation of grabbing meals on-the-go or joining co-workers for happy hour can take quite a toll on your bank account if you do these things too often.  A trick that I used to use in my 20’s was to eat a PB&J before going out to eat or “pregame” before going out for drinks in order to save money at the restaurant or bar.  If that tightwad tip doesn’t appeal to you, simply  start keeping track of a budget and limit the amount of money you waste on uneccessary items, like going out for food and drinks.

4.  Waiting to save and invest.  Many new grads think that retirement should be the last thing on their mind.  If you just started a job how can you already be preparing to retire from it?  But, the earlier that you can start saving, the better off you will be when that time does come.  Because of the power of compound interest, starting to save early can be life changing.  The article offers some good advice regarding first setting up an emergency fund and then establishing savings for retirement and other goals.

5.  Failing to negotiate for a higher salary.  This point is one I’m not sure I fully agree on, especially given our current economy where positions are easily filled.  Do not accept substantially less than you deserve, but also do not let the initial salary control too much of your decision when searching for a job that fits.  Make sure you consider the big picture and what future opportunities a job is offering you as well.

6.  Thinking you’re done studying.  Although you may have completed all of your college credit hours, chances are you still have a lot to learn when it comes to money management.  Those of you listening to our show and following our suggestions for achieving financial success are already a step ahead.  If you are up for additional “studying”,The Wealthy Barber is a great book to get you motivated towards financial independence.

7.  Getting buried in paperwork.  Between receipts, statements, pay stubs, and tax documents, it can be extremely difficult to stay organized when it comes to your money.  A couple of really helpful resources that I use to reduce paperwork stress include Mint.com to track my spending and Paytrust.com to automate my bill paying process.  There are also some really good resources such as Quicken Health Expense Tracker which keep up with your healthcare payments and claims.

Hopefully these tips will be useful for not only recent college graduates, but also their parents and anyone else out there who is looking to gain better control of their financial situation.

Again, we would love to hear any questions, comments, or suggestions on our Facebook page as well as on the website!

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