What three financial skills should every college graduate know and practice?
julie gampp, vice president/investment, stifel
For many new graduates, this is the first time they truly will be in charge of their own financial futures. Decisions about their careers, where they’ll live and even lifestyle changes are at the top of their lists. During this uncertain time, many financial mistakes can happen without proper guidance. Here are a few ideas to stay on track:
Mind your debt. If you have student loans or credit card balances, make payments on time. Not staying on top of this will lower your credit score, which can lead to higher interest rates or denial if you apply for a home or car loan. Also, landlords may reject your rental applications if they feel you are a credit risk.
Start saving and investing immediately, even if only $25 a month. The key is to get your money to double as many times as possible. Turning $25 into $50 may not sound exciting, but it only takes 10 ‘doubles’ to turn it into $25,000. The higher the rate of return, the faster your money will duplicate itself. A financial adviser can help if you don’t feel confident choosing the appropriate options yourself.
Make big purchases wisely. Start off slowly; lots of things will change over the next five to 10 years. For example, you’re probably tired of college apartment sofas, but reconsider buying a full living room set after you land that first well-paying job. It may not fit in a home you purchase down the road.
ken poteet, founder and chairman, m1 bank
If there is a critical financial concept or skill set that has been overlooked outside the curricula of geometry, algebra, calculus and statistics, it’s applied math. This is the concept of incorporating the necessary math and finance skills to navigate through and maximize the earning power of anyone in the workforce. While various degree types and educational levels can provide a reasonable expectation of a salary range, applied math provides the necessary skills to manage and maximize the retention of those earnings, relative to one’s income level, over a period of time. The three financial skills critical for wealth management and retention are:
The power of compound interest: The ability to quantify the difference between the earning potential of simple and compound interest.
Pre-tax savings opportunities: IRAs and 401(k)s are financial instruments that provide the wage earner the opportunity to maximize their income with pre-tax contributions. Applied math concepts help people understand their effective tax rates and the return multiplier as a result of pretax investment and match opportunities.
The ability to budget: It’s not complicated but extremely important. Budgeting is the ability to tell your money where to go rather than wondering where it went. Determine what prudent percentage of your income should be allocated toward your home, living expenses, savings and lifestyle.
Suggested reading: The Millionaire Next Door.
