Congratulations to all who recently completed their college educations. As you look ahead to a world of possibilities, invest a little effort in setting your financial future on the right path from the outset. Thirty years from now you may not recall the graduation speech, but you will appreciate the early steps you took toward prosperity if you make some good choices today.
Resolve to avoid debt like the plague. Make debt avoidance a lifelong habit, and you will have taken the most important single action to ensure a comfortable lifestyle in later years. Some investments are worthy of borrowing (if done smartly), namely education, housing and maybe a vehicle. Pizza and beer, not so much. If you are running a tab on your credit cards to finance current consumption, you are already off to a bad start. Reset now and resolve to incur minimal debt and to pay it off as quickly as possible. If you do have student loans, call your servicer to explore available repayment plans and their relative costs in order to eliminate your student debt ASAP.
Make a budget. Ugh, sounds tedious. But even a rudimentary stab at planning your expenses and income over the next year will prove educational. Don't get lost in minute details, and don't get too upset if you miss the target. The idea is to get acquainted with your own spending proclivities in order to control your destiny in the years ahead. Simple budgeting is an excellent way to inject discipline and instill good habits of delaying gratification, living within your means, and saving up for the occasional luxury. Most successful budgeters derive deep satisfaction from accomplishing their financial goals in excess of the pleasure attendant to having more stuff.
Start saving and investing today. Retirement seems a lifetime away, so it can be hard to focus on stashing cash now for the golden years. Recognize that the one major asset you possess today is time, the secret ingredient in the magical potion of compounding. Take the $15 you spend at Starbucks each week and invest it instead into the stock market. At the average rate of return, you would have an extra $300,000 in the bank when you retire. Drop $200 per month into your 401(k) and you could easily be a millionaire at 65 (not counting company matches). Start by asking lots of questions about your employer's retirement plan options; some offer to match part of your own contribution. If your company has no plan, look at a Roth IRA that allows you to keep all your gains at retirement tax-free. Most importantly, get started today.
Clean up your digital footprint. Many graduates realize too late that potential employers look at social media too. That picture from the frat party might have seemed hilarious at the time, but the CPA firm with whom you are interviewing may not think the lamp shade complements the toga. Search out your own record of social media and blog posts and try to remove anything that might not be viewed in the most positive light. Some potential employers may even insist on seeing your password-protected content, so be proactive in managing your online image.
Do good works. Take time out to volunteer to help a good cause. Not only will you find valuable networking opportunities, you will never regret spending time doing something productive for someone else, and you will be a better person for it.
Congratulations to all the recent graduates and best wishes for a happy and productive career.
Christopher A. Hopkins, CFA, is a vice president and portfolio manager at Barnett & Co.