Financial Advice for New Education Professionals – May 2018
New professionals in education have a number of financial factors against them. Student loan debt can take away a lot of financial momentum before professional careers even get started. The average debt for an undergraduate is “$37,172 in student loans, a $20,000 increase from 13 years ago”, according to cnbc.com. Additionally, usnews.com reports that “One-quarter of graduate students borrow nearly $100,000, and another 1 in 10 borrow more than $150,000.”
It is important to get personal finance right really in a career. Simple mistakes with debt can lead to extreme costs over a longer time frame. For example, in addition to student loan debt, new professionals face things like credit card debt, car loans, car leasing, and other lifestyle temptations. With average interest rates at 13.56% (nerdwallet.com), credit card debt can add up and, over the average time, lead to high balances that can take a long time to pay off.
There are simple steps that can be a huge help over a long time period. For example, being smart with retirement accounts and matching contributions could lead to some money. Specifically, 100 invested with 100 added per month for 30 years at an average interest rate of 6%, which is a conservative estimate of long-term rates of return based on moneyunder30.com’s review of the S&P 500, can lead to $95,444.17. Of course, as salary increases over a working life, contributions should go up and lead to even greater compounding.
There are lots of mistakes that new professionals make. Luckily, there is good advice all available. US News has a great list available at https://money.usnews.com/money/blogs/my-money/2014/08/26/37-personal-finance-experts-to-follow-on-twitter
One that I like and recommend for his simplicity and straightforwardness is Dave Ramsey. He has helped a lot of people, and his program is great in its simplicity and clarity. You can learn more about the specifics of his program at daveramsey.com.
In my work with new professionals in education, I have learned some things I would like those graduating now to do (and not do) a few simple things.
- Create and use a budget
- Build up an emergency fund
- Contribute to your retirement account, at least enough to get any available employer matches
- Get further into debt
- Buying more care than you need (also leasing a car)
- Using debt to finance lifestyle
Why three each?… Simple, easy to remember, and there are more things one can bo (of course) but these are what I see at foundational. Once these basics are handled, new professionals can move on to other financial goals.