Managing finances after college

How to get off to the right start in the real world

Now that you’ve graduated from college, it’s time to start the next phase of your life. Here’s how to make sure you’re spending your money in the right places to make the most of your new income.

Podcast transcript

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PETE: You’re listening to How Not to Move Back in With Your Parents here on the IU Money Smarts radio network. I’m your host Pete the Planner, joined by my good friend, Alex. Hello, hello, hello.

ALEX: Hello.

PETE: That’s three hellos this week. I’m three times as glad to see you.

ALEX: Well thank you. I appreciate it.

PETE: I didn’t mean that. All right, so this week on the show, we are talking about a glance at financial life after college. Do you think about your financial life after college at all? Like right now, you’re a junior.

ALEX: Yes.

PETE: You think about it?

ALEX: I do though, I do.

PETE: What do you think about?

ALEX: I have a couple specific goals that I would like to accomplish as I’m getting close to getting out of college, and getting out of college. So one of these goals, specifically, is I can’t study abroad because of situations with wanting to get internships, etc. So I want to take a trip after I graduate to Europe overseas.

PETE: Okay, so that’s actually a pretty wise financial decision, because what you’re saying is that’s prime time to get an internship. Although I do have the desire to travel the world and find myself. Where are you going to find yourself, like in the Andes or something?

ALEX: Who knows. We’ll find out though.

PETE: Yeah, we’ll find out.

ALEX: It’s gonna be great.

PETE: Send me an email from there. Unless you’re off the grid.

ALEX: I might totally be off the grid.

PETE: I can see that.

ALEX: Mountain man.

PETE: Grow a big beard.

ALEX: We’ll see.

PETE: Smell terrible?

ALEX: I can get the sideburns and the chin, I can’t connect the dots yet, it bothers me.

PETE: Well that’s all right, a lot of middle schoolers can but you can’t. So your financial things you think about are kind of an indulgence. Post graduation to be able to travel for a little bit. Do you view that as just gonna be the summer from the time you graduate until maybe the start of the school year again? But the fact is you’re gonna have to find job at that time.

ALEX: My optimal plan right now is to hopefully have a job offer before I graduate, crossing my fingers.

PETE: And just say, hey, I’m going on a two months sabbatical deal with it.

ALEX: I will be traveling. I can start this date.

PETE: It’s kind of a baller move to just go in to your boss and say, thank you, I accept the job and I’ll see you in 60 days.

ALEX: Well I’m crossing my fingers.

PETE: You need to cross your toes too, cuz that, anyway. So, here’s where we should go with this. You know, at this point in your career, in your college career, every student no matter what their major is, what other industry they want to go in, they should have a general feel of what sort of money they’ll be able to make outside of college. And I know coming up in a couple weeks we’re gonna talk about the cost of changing majors and the financial ramifications of the different majors you select. And by no means is there a wrong, a wrong answer or a right answer when it comes to choosing a major. You gotta study what you like and you just gotta be able to deal with the financial ramifications of that. And part of this process Alex, is by the time you get out. From asking friends that have already graduated, you gotta have a pretty good idea how much money you think you’re gonna make. Now, you don’t have to tell me. Do you have kind of a target number of what you’d like to make when you get out?

ALEX: There is, for me, honestly, I don’t have much experience yet in the field that I’m going into. So I don’t know maybe I know the opening salary is more of other fields than I would maybe mine at this point.

PETE: What do you think the general expectation is? This is a huge generalization, and I apologize, but you’re going to have to deal with it. What is the general generalization is of how much you’re going to make upon graduation? What does the student think today?

ALEX: For me right now I would say for my field maybe I’m thinking maybe 35, 40, 45 would be really good. Cuz I’m not financed. I know some of the financed. Some kids expect 50 to 60 sometimes, which I know is pretty high.

PETE: Yeah.

ALEX: I’m assuming.

PETE: And I think if you’re in education school and you’re gonna be a teacher you know what you’re gonna make when you’re gonna be a teacher. And for the kids going to law school or medical school or any sort of postgraduate degree, then they know then it’s gonna be a little bit longer until they’re bringing income. But I think kinda the best decisions you make going forward on any of that stuff is the big purchases. So your education is your number one big purchase, right?

ALEX: Right.

PETE: You sign on the line, we’ve talked before on this podcast, you have student loans that you’re gonna be dealing with. Good, bad or otherwise and there’s that.

ALEX: Yup.

PETE: The second thing you guys start worrying about is where you’re gonna live. So the three major purchase decisions people make post graduation is number one, the student loans and that isn’t post graduation. Number two, is where they’re going to live physically, are you gonna buy or rent. And number three is transportation. So many people wanna buy a car post graduation because they’re able to. Well I can tell you it’s one of the biggest mistakes out there because it’s gonna eat up so much of your discretionary income that it becomes a problem. So I think as a college student, one of the best things you can do, number one is upon graduating figure out exactly what your students loan repayment is gonna be and subtract that off of what your take home pay is. And then base your rest spending of that net number. You gotta take the student loans right off the top, you gonna be in trouble. Then we generally like to see 25% of your income post student loans, go to mortgage payment or rent. But the reality is most students upon graduation, as you know Alex, are what? They’re gonna rent, right?

ALEX: I would hope so.

PETE: How much do you buy into the renting is throwing away your money? You grew up in Central Indiana, midwest sensibility about yourself how much do you think students buy into throwing away money is equivalent to renting?

ALEX: I honestly think now less and less as we go forward our thinking negatively of renting, I personally plan on renting for a while after I graduate and I know a lot of my friends are. Plus, a lot of people just want those, a lot of people move cities after they graduate, especially in my field. And they’ll wanna be in those apartments downtown, things like that. But buying a house right now is way too big of a purchase for us to want to do at this time.

PETE: If you’re listening right now. Which, if you’re listening right now then you certainly are listening right now. [LAUGH] I want you to exhale for a second and I want you to say this to yourself. I want you to say, there is no shame in the game of renting. I think you put a lot of pressure on yourself if you get in a hurry to buy a house. And I think a lot of parents do their students and their children a disservice by saying things like, well, you gotta hurry up and get in a house. You don’t wanna throw away that money for rent. That’s a huge mistake. I think until you’re ready, financially ready to buy a house, you shouldn’t. And just because a bank will loan you the money. Or just because you can afford the mortgage payment doesn’t mean you should buy the house. So Alex I think people do themselves a huge disservice within the first five years of graduation by simply making a poor housing decision that they buy instead of rent until they figure out what they’re gonna do.

ALEX: Yeah and this is really weird for me to go here but personally I feel like I won’t wanna buy a house until I’ll be at the point where I wanna start a family.

PETE: Yeah, well that’s fair.

ALEX: That’s weird to think about it cuz I’m still in college but it’s-

ALL: [CROSSTALK]

ALEX: We’re getting deep here but for me that’s where I’m at in my mind as to buying a house but I’m fine renting up until that point.

PETE: I’m gonna send this episode to your mom, talking about starting a family.

ALEX: Gosh.

PETE: I’m so uncomfortable. The other expenses you need to worry about post graduation, 15% towards transportation and again that’s net student loan payments. So 15% towards transportation, and Alex as you know the three biggest elements towards that is car payment or lease payment, fuel for said rig, and of course insurance as well. And oddly enough that’s pretty challenging to do on a starting salary is to try to stick it under 15%. That’s why if you live in a bigger metropolitan area such as a Chicago or New York, man, getting away on public transportation makes a heck of a lot of sense.

ALEX: Yeah, it’s huge if you can take advantage of that because that’ll save a lot of money. You can take out two of those, three, you can take out all three if you don’t have to buy a car you don’t really need insurance for it.

PETE: That’s exactly right. You can more or less eliminate-

ALEX: So, gone.

PETE: And get down to 1% of your income going to transportation, which is fantastic.

ALEX: It’d be perfect.

PETE: Here’s the thing, when you get out of school, it’s, I mean short of your student loans, which is a pretty big deal. It’s a fresh start. If you don’t make any major mistakes that a lot of people make right off the bat, you’re golden. You can, let’s say you get your job before you pick your place, which seems like it would make sense. Pick your place close to your job. Even if you have a car, that means you don’t have to drive as far. I think one of the stupidest things that people in the 30s and 40s do is they’re just moving further and further away from work. It makes absolutely no sense that their life’s footprint, where they do their living is so far away from from work and they’ll claim lifestyles and schools and everything else, but the reality is, Alex, what sense does that actually make? Just live in the community in which you work or choose a job in the community in which you live.

ALEX: Yeah, you can work up to maybe doing that later, but in the beginning you’ve gotta be smart with your money. And that actually leads me, if we have time to another question that I’d like to ask.

PETE: I have time for you. Mainly because we talked about starting a family.

ALEX: Yeah.

PETE: So weird. Not together, of course. I’m married. Go ahead. Good question.

ALEX: So as far as, you’re going to have hopefully that starting salary outside of school. For a student at this point maybe where I’m at, an upperclassman right now, going forward as they graduate may be in-between that time where they get a job and they’re graduating. Is there any amount of money that would be good for them to have saved up in their checking or savings account at that point to have when you graduate?

PETE: Excellent, excellent question. The answer is just get out with as little debt as possible. And what’s in the checking account at that point frankly in my opinion doesn’t really matter. It’s unrealistic to think that you’re gonna have a bunch of money stored up for graduation time so you can get to your job. The reality is as much as this show is called How Not To Move Back In With Your Parents, those couple moths post graduation you may be leaning on the parentals a little bit. And if that’s the case, so be it, just set a deadline. Then you know what, I’m outta there August 1st. Don’t move back in with your parents indefinitely. It’s not good for you, it’s not good for their retirement, in fact from the top four reasons that people struggle retired today is because of increased assistance to adult children, well guess what. You’re an adult. You’re still their child, don’t mess up their retirement. I think that wraps it up for this week, what do you think?

ALEX: Yeah, I like it.

PETE: All right, so, if you want more information about our show please go get it. I’m not even gonna make you Google it. Go to moneysmarts.iu.edu. I’m not even gonna make you Bing it. Is there anybody on Bing?

ALEX: Nobody.

PETE: All right so this is How Not to Move Back in With Your Parents brought to you by the IU MoneySmarts Radio Network.

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