Life Before Noon: A Millennial’s Manual

Editor’s Note: This post is by Jon and Matt who write about what to do and what not to do with your money after college. Jon and Matt are guest writers from The Corporate Hack, a blog for young professionals on navigation tactics for the corporate world.

For those about to graduate, we salute you. Seriously, congratulations!  College is a long hard road and after four years (or five, or six) you are about to free yourself from an endless cycle of term papers, Monday morning pop quizzes, and long boring lectures.  This is cause for great celebration.

If you guys are anything like us, you suffered through college scrimping and saving, squeezing every last ounce out of every dollar you earned.  You’ve eaten more bags of Ramen than Tokugawa Mitsukuni and the promise of ‘free food’ has conditioned a response remiscent of Pavlov’s Scotch terrier.  After all these years of (forced) discipline you’re going to want to live it up a little once you land that first job.  We understand that, but we understand the danger of that temptation as well. Just a couple missteps in the world of personal finance can lead to years of heartache and burden, and that’s not how you want to start off your post-college life. In light of that we want to offer you a few quick financial tips to get you started on life in the so-called real world:

PAY YOURSELF FIRST
One of the most beneficial things you can do for yourself as you begin your career is to form the habit of saving.  This doesn’t have to be a complicated stock and bond mechanism requiring you to monitor the stock ticker like a day trader. Set a simple goal to deduct ‘X’ percent of your monthly paycheck to be locked away in a separate high-interest savings account. Aim for somewhere between 10-15% of your net income (after taxes), and take it out as soon as you get paid.  This automatically locks away a portion of your regular income for future big-purchases like a car or down-payment on a house. No doubt, this will be a big sacrifice to make, but consider the long term effects: Suppose you earn a modest $24,000 a year (or $2000 a month). If you were to save 10% of your bi-weekly paycheck you would after 4 years have locked away nearly $10,000, which is not a bad down-payment on a house in many parts of the country.

PAY OFF YOUR CREDIT CARD
When money is tight many college students quickly reach for the credit card to finance their weekend lifestyles, which is convenient at the time, but can be downright disastrous if left ignored to rack up hundred of dollars in needless interest fees. Regardless of where you stand now in terms of credit card debt, we want to encourage you to get a handle on your spending.  Living off credit cards is a downright foolish and dangerous way to live your existence; by living off credit you are tricking yourself into thinking you are actually buying things, when in actuality you are merely postponing payment at a rate of +12%… YIKES! Get yourself on a plan and attack that outstanding credit card debt. First, stop spending money you do not have - only purchase items using cash or a debit card so that money is taken directly from your checking account. Next, cut down your lifestyle and devote all of your extra cash towards getting rid of that debt as soon as possible. Get serious about it - any money not going towards food, rent, and your savings plan needs to go toward the credit cards.

DON’T FINANCE A CAR
The status symbol of choice for the vast majority of American’s is the car they drive. Think about the number of people you know who’s single largest financial investment is an aluminum money pit all for the purpose of impressing someone they’ll never meet at a stoplight. If you can let that statement sink in for a minute, you might begin to realize that a really fancy sports car isn’t necessarily the most important thing to do for yourself right now. By all means, someday we want to see you driving a silver Mercedes, but for now you’ve got more important things to devote your money to.  With that in mind, don’t buy a car on credit. Even if your payment is only $200 / month, it’s just not worth it. Buy an inexpensive used car instead for $2000 that will get the job done for now, and take that $200 / month you save and throw it at your credit card debt or towards your personal savings.

HOMEOWNER OR NOT TO HOME OWN?
Upon graduating college and finding a job, many people (ourselves included) jumped into the housing market and began searching for that perfect place. However, as you settle into your first job you may notice those around you aren’t settling into their perfect home.  Besides the recent mortgage meltdown drama and the unstable housing market, there are other significant factors to consider before buying a home. First off, right out of college and into a new job, a new home might just be too much responsibility.  It takes considerable time and money to decorate, maintain and landscape.  Beyond that, you need to determine whether owning a home is worth the money.  A vast majority of your monthly home payment will go to interest, taxes and insurance.  A quick calculation can show how much of your money goes to equity and how much goes to… your bank.  If that wasted money is more than renting an apartment or home, you need to rent.  You’ll actually keep more money by not owning property!

As you step out and begin life truly on your own, be deliberate as you do so. Don’t let the thrill of a steady income and the magic of direct deposit get the best of you.  It’s so easy to quickly overextend yourself financially when you’re fresh out of college.  It’s our hope that following these four financial tips will help you tread carefully and treat that all important bi-monthly paycheck with respect.