For
Those About to Graduate: Start Planning Now
Randy Bartlett |
It won’t be long
now. More than 700 graduates will soon step off the Smith
campus and into a world of uncertainties and exciting possibilities.
Wherever they are and whatever they are doing, many will
share a common experience: adjusting to the realities of
today’s limping
(for now) national economy.
For many, that will mean
learning how to balance their income with their expenditures
for the first time—joining
the rest of the country in cringing at the price of gasoline
at the pump, perhaps reconsidering dinner at a restaurant
and opting to cook something at home, settling for something
already in their closet instead of buying a new outfit for
the evening.
“How you plan your finances
now can have huge ramifications on how your life will play
out,” says Randy Bartlett,
professor of economics, who has been meting financial advice
to Smith students for several years at the popular Women
and Financial Independence (WFI) lunchtime sessions. So establish
good financial habits early in life, and strategize for middle
and old age while young.
“Money comes in hard and goes out easy,” adds
Bartlett, an adage, he admits, he didn’t impress enough
upon his three children, now aged 30, 26 and 24. His WFI
lectures, he jokes, often consist of “what I didn’t
tell my kids when they were college age.”
Bartlett recently offered
his views on today’s economy
and what Smith graduates might soon face. First things first:
Jobs
The good news for those about to graduate is that the job
market is still strong historically with a national unemployment
rate of just over five percent, Bartlett points out. That
means most Smith graduates will be able to secure a job,
though it may not be their dream job right away.
“These are interesting times,” Bartlett says. “Nobody
knows for sure what the economic future looks like. There
are industries that will suffer for a long time. But I think
most of our students are finding or will soon find something.”
For those who don’t
find employment quickly, Bartlett recommends casting a
wide net, applying for many different positions, and keeping
an open mind about location.
Health Care
Health care is expensive,
there’s no way around it.
Depending on where you live, there are alternatives to full
coverage, such as plans that cover only catastrophes, with
high deductibles, an appealing option for some young people.
A group plan with employers is often the most affordable
package.
For those lacking that
option, check what plans are available, says Bartlett,
depending on which state you’re living
in. Above all, he advises, “Don’t go without
some kind of health care. It’s a very high risk.” With
today’s prices, one unfortunate accident or malady
can turn into years or decades of medical debt.
Housing
If you plan to move to
Boston, New York City or San Francisco: good luck. Housing
costs in those cities, it’s no secret,
are among the highest in the country.
“Housing costs depend
largely on where you go,” says
Bartlett. The same money you might pay for a modest loft
efficiency in Chicago could buy a sizeable condo in Utica,
New York, or Fargo, North Dakota.
“For most recent graduates, the way to make housing
in the most expensive cities possible is to recognize that
you will need to find others to share the cost,” says
Bartlett. “And that is where the famed Smith network
comes into play. Fortunately, there are Smithies everywhere.”
Debt Management
An important issue for
recent graduates, student debt will likely play into most
budgets for the immediate future. The average Smith student
graduates with $20,000 in student loans soon due, says
Bartlett. Many of today’s students also
graduate with thousands in credit card debt on top of student
loans.
Consider management of
student debt within the context of other money owed, such
as to credit card companies, says Bartlett. “I would recommend being well-educated about
student loans, the possibilities for consolidation, the tax
consequences and how best to match the payback periods to
your individual earnings profile,” he says. “There
is no one-size-fits-all formula for handling student loans.”
More importantly, do not
get caught in the credit card web of owing more than you
can pay off on a monthly basis. With credit card interest
rates typically hovering between 16 and 20 percent, it’s
a losing financial proposition to carry debt to credit
card companies.
Bartlett cites the following
scenario in his WFI lectures: If you have $3,000 in credit
card debt and pay only the minimum remittance each month,
it would take 18 years to pay off the entire balance. That’s
a lot of interest.
“Use your credit card and pay off the balance each
month to avoid interest payments,” he says. “When
it comes to credit card debt, pay it all off as fast as you
can.”
Investment
Regardless of the state
of today’s economy, Smith
graduates face “one great danger and one great opportunity,” Bartlett
explains. “The danger is out-of-control credit card
debt [see Cost of Living below].” The opportunity is
to begin a long-term investment program at a young age.
“Take advantage of compounding interest on investments,” he
says—the most assertive advice he gives. “If
students invest even a tiny amount regularly and let it build
for 30 or 40 years, the payoff by the time they’re
at retirement age will be astronomical.”
Waiting until your 30s or 40s
to invest can cost hundreds of thousands of dollars in potential
interest earnings and can translate into a decidedly different
lifestyle, he adds.
Cost of Living
Food prices are likely to continue rising as energy costs
increase and as the world transitions to ethanol development
as an energy resource instead of food. Daily transportation,
clothing and entertainment are also on the rise in the current
inflationary economy.
Despite today’s high cost of living, lifestyles can
be well managed by budgeting, says Bartlett. “You have
to be in control of your finances,” he says. “Keep
track of where your money is going.” As an experiment,
he suggests, write down every time you spend, even in small
amounts.
“You’ll be surprised at how much you spend on
little things—a coffee at Starbucks, a couple movie
rentals, a dinner out. It adds up, and at the end of the
day, you have to make sure that what you spend each week
doesn’t exceed how much you bring in.”
Happy travels, graduates.
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