Tips to Help College Graduates Find Their Financial Footing

Financial Advice to Share with the New College Grads in Your Life

There is no shortage of advice out there for new college graduates. They may be hearing it from college professors, academic and career counselors, friends, and on social media. When it comes to setting themselves up on firm financial footing, however, there’s nothing quite like advice from parents and grandparents who have already successfully navigated this life transition. Young people who are just starting their careers are facing a difficult financial landscape so, in addition to your own wisdom, you can share the below financial advice for new college graduates with the young people in your life.

Don’t Get Caught in the Comparison Trap

Regardless of the specifics of anyone’s undergraduate journey, all college graduates leave school with one thing in common: a degree. Unfortunately, that equitable foundation can be overshadowed by things like who lands the most lucrative job, who purchases a home first, who has the most prestige, and so on. All of these things can hold more weight than they should in a young person’s mind and falling into this comparison trap is rarely helpful.

According to research by Sarah Newcomb, a behavioral economist for Morningstar, measuring yourself up against your peers, especially people who you perceive as doing better than you are, is detrimental to your overall financial wellbeing. These “upward comparisons” cause more stress, less life satisfaction, and more negative feelings about your own life.

So, how can you help a recent graduate avoid this detrimental peer benchmarking? Newcomb’s research also found that study respondents who partnered with a financial role model were more likely to feel confident about their ability to meet their goals. So, not only can you share the danger of comparison, but you can offer to serve as a financial role model, too.\

Embrace Your Safety Nets

It’s natural to want to find your own way in the world and prove you can take care of yourself. However, many new graduates could benefit from a few months of utilizing their familial safety net as they try to find their footing. For instance, living at home with their parents for six months as they explore the job market could be a great opportunity to save money and make their next step a more financially stable one.

Outside of a familial safety net, there are other safeguards young people could take advantage of, too. If there’s one thing the COVID-19 pandemic taught us, it’s that we should always prepare for the unexpected. There are steps young adults can take, like purchasing health, disability, and renter’s insurance, to protect themselves, and they should also start building an emergency fund. All of these steps can be daunting, so if you’re serving as a financial mentor, help them tackle each one with confidence.

Let ROI Guide the Way

So, let’s say a new graduate has found a job and is thinking about their options. It can be difficult to understand what to prioritize and when. For instance, they may be wondering whether to pay down student debt first or to funnel some of their extra funds into their employer’s 401(k) program to get their money working for them as early as possible.

There’s no one-size-fits-all answer, of course, but it’s good advice to remind them to look at where they will get the best return on investment. Often, it will mean pursuing more than one goal at the same time, in moderation. So, maybe it will be best for them to contribute enough to their 401(k) to get the maximum employer match, then funnel any extra income toward paying off student loans. Since tax-advantaged tools may be new to recent college graduates, helping them determine a savings strategy there can be a valuable way to offer assistance.

Remember to Think Big (But Take Small, Consistent Steps)

As you likely know from your own financial journey, there is much to be gained from having the right long-term investing strategy. Getting started with investing might seem like a daunting prospect to the uninitiated, but many new grads would be surprised at how little it takes to get started, and how much future impact they can enjoy by taking advantage of their longer time horizon. Think of explaining it to them in this way—a $1,000 seed investment, with an additional $100 each month, earning a “not-unreasonable” 7% rate of return, would mean $280,000 40 years from now.

Of course, there is inherent uncertainty and volatility in the markets, and young investors also need to learn to cope with market fluctuations from an emotional standpoint. It can be helpful to act as a sounding board for their worries and to remind them that successful investors play the long game.

Know the Importance of Investing in Yourself

Recent college graduates who want to achieve career and financial success should remember that their education won’t end with a college degree. In fact, in some ways, that’s just the beginning. Graduate degree programs, certifications, designations, advanced training, and more will be important in the working world – as will investing time in connecting with professional mentors. Some of these investments will require both time and money and, though it can be scary to build upon existing student loans, this is another area where a young person can let future return on investment guide the way.

While we’re talking about investing in yourself, it’s also a valuable lesson for new college graduates to learn that some investments will have nothing to do with money. Help them examine their personal priorities, whether family, travel, friends, personal development, or a personal passion. Whatever lights them up outside of work is worth investing in, too. After all, balancing financial asset interests with an investment in themselves as a person can be a rewarding enterprise.

Final Thoughts on Financial Advice for New College Graduates

Navigating personal finances as a new college graduate can be challenging. You can help the recent grads in your life by sharing the above advice and being available to answer questions as they begin their journey in the working world. Will they always be open to hearing advice? Maybe not! However, making it clear that you’re available as a sounding board, financial role model, or just a listening ear can prove invaluable as they build a strong financial foundation to support their future goals and dreams.

Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of a tax strategy and financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. The tax and estate planning information provided is general in nature, which should not be construed as specific financial planning or tax advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597.

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