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When Life Happens: So You Graduated College


You’ve spent the past four (or six or eight or even more) years sitting in classrooms, thinking about the future, reading books, being inspired by great lectures, writing papers, making lifelong friends, and incurring student loan debt. Maybe you’ve been chomping at the bit to move on, and working the interview circuit—hoping for that right career offer as you bide your time to graduation.

And now it’s happened:

You have moved the tassel to the left, promised to keep in touch, packed your stuff (which you’ll drag around with you for a few years), and headed off to your new job—or jobs!

You have a top-notch education, you basically feel equipped to (at least pretend) that you know what to do at your new job. You’re off and running for life.

But did anyone in college—or even your parents—ever talk to you about some very basic life skills? Such as:

I’m betting you haven’t received as much instruction or support in these areas as you would like, which is why I’ve got the breakdown here for you below.

Bank Account

You’ve likely had a bank account since your first part-time job way back in junior high or high school.  Not to minimize the importance of a childhood bank account, but now that real life (AKA  adulting) has overtaken you, that bank account is going to be the hub of your financial life.

These days, many (if not most) of our bills are paid automatically from our bank accounts either through auto drafts, debits, or online bill pay.  Physically writing a check is pretty rare. And the truth is that not many folks keep a written, physical “check register” anymore—or even know what that is.

This is where an online resource like Mint becomes a really good friend.  Basically, you link your bank account and credit card(s) to Mint and it pulls in all the transactions and summarizes them for you.  In other words, it does the tedious work that in times past was the “check register,” so you know where your money is going every month.  You might also check out the not-free, but significantly more robust YNAB.com (You Need A Budget).

You’re going to want and need something like this.  Consider it essential.

Once your paycheck is direct deposited, you need to know how much is actually available for you to spend.  Working within a system like Mint will help you see at a glance where you stand from a cash and budget standpoint.

The information gathered and assembled by Mint becomes the basis for your spending plan.

Savings Account

This is also a bank account, but it is NOT a checking account—which explains why it’s called a “savings” account.  You need one; you should consider it essential as well.  Socking away six months of living expenses into your savings account should become your first financial goal.  Every financial advisor is going to tell you this.  It’s called your Emergency Fund.  If you Google “emergency fund”, there are more than four million hits.  Why is there so much to say about it?  Again, because it is essential.  You can open a savings account that is associated with your main checking account, or you can open one at an online bank where you tend to get a little higher interest rate. (Yes, you can earn interest on the funds deposited in your savings account! It’s one of their best perks.)

Now, how many are actually going to do this?  Sadly, not many.  The savings rate among Americans is dismally low, dangerously so.  If you develop this discipline very early in life, it’ll make it easier to become second nature to you—even when you’re  struggling.

Spending Plan

What do we mean by “spending plan?” If we boil it down to plain English: a budget. Not fun, we know.  Most people have likely checked out and moved on to the next bullet point by now, but if you’re still here, you’re about to get a leg up on all your friends.

There are a number of easy-to-use, user-friendly—free!—applications out there today to help you with this (no way to spin it) mind-numbing task.  Mint, for instance: if you’re already using it to track your bank account, you can expand your use of the site and app to help you budget.

Why go through planning a budget and using some app to help us keep track of it?  Because most people don’t have the special kind of mind that can accurately retain the sort of data necessary to answer the following question: “How much have I spent on every category of expenses over, at least, the past year?”

We think we know.  But human minds are tricky.  Your mind can basically trick you into believing something that is absolutely not true.  For example: you think you spend about $100 per month going out to eat.  A spending plan, on the other hand might reveal that you actually  spend $350 per month going out to eat.

Is one right and one wrong?  Yes, what your mind tricked you into believing is factually wrong.

Is one good and one bad?  No. Your spending plan depends on a lot of things and is as unique as you are.

You just need accurate information in order to make the right decisions for your goals and financial situation.

For instance, when you tell yourself, “I cannot afford to contribute to my company’s 401K Plan,” you should understand why you can’t afford it—and whether that’s, strictly speaking, accurate.

When you convince yourself to buy the cool new car with “easy monthly payments” of $750 because you “make plenty of money,” you need to understand whether this is true or not true—and whether that’s actually a good deal in the long run.

The examples illustrating why you need a budget are as varied as the lives we all lead.

Your spending plan is unique.  You need to understand it to make the most of it.

Basically, you need to know the answers to the following questions:

We’re talking about some very basic data here, and capturing it will just take a few minutes each month.  It will be time well spent.

Don’t know how to get started on a budget/spending plan?  Talk to someone.  Ask Google!  Ask a friend! Ask Alexa!  Just do it!

Paying Taxes

There is nothing simple about our US Tax Code.  Regardless of whether you understand it, you have to live with it and, unfortunately, die with it.

When you get your first job, it may come as a surprise to you that you do not get to keep all of the money you earn. Sorry, that’s life. At a minimum, there are two kinds of taxes that your employer withholds from your paycheck:

What’s the employer going to do with this money?  They’re going to add another $4,650 to it and send it to the Internal Revenue Service, who will put it into a fund that will be made available to the Social Security Administration to pay social security benefits.  You will get this money back many years down the road when you hit retirement age.  There is no way around this tax, and you’ll be glad of it later.

What’s the employer going to do with this money? They’re going to add another $1,087.50 to it and send it to the Internal Revenue Service, who is going to put it into a fund that will be made available to pay Medicare Insurance benefits.  Medicare insurance, under current law, will become available to you (in the normal course of events) when you turn 65 years old.  There is no way around this tax, and you’ll likely be glad of it later.

Additional taxes include: 

Filling out the W-4 is where many people wind up calling on a professional tax preparer to help them figure out what should be on it.  However, just out of college, if you’re unmarried, have not purchased a house, and your job is your only source of income, filing out your W-4 should be fairly straightforward.

For Social Security and Medicare tax, there’s basically no way around paying it.  For federal and state income tax, on the other hand, there are strategies and planning opportunities that can help keep your tax burden as low as possible.  The key word here is  PLANNING.

Sidebar: What if you are not an employee, but an independent contractor?  That means your earnings are reported on a Form 1099 and no taxes are withheld, which is often the case with freelancers or those working in the gig economy.  Or maybe you own your own company.  The tax concerns involved here are at a different level of complexity for a different article.  Just know that you must stay ahead of the curve if you’re in that situation. Again, planning is essential.

Employee Benefits

I have a job and some money coming in every two weeks… is there more?

Yeah, there’s likely more and some of it may be entirely free!

Don’t leave anything on the table, and make sure you’re leveraging all your employee benefits.

Whether you have many employee benefits or only a few often depends on the size of the company. 

What are the typical benefits you see most often?

401K Plan

You’ve probably heard of it, but do you have any idea what it actually is? You may think: “It has something to do with money when I’m old. Right?” Well, yes. You’ve got the basic concept exactly right! It’s about the future, and it’s important that you don’t discount the future—even if you’re just entering your 20s, the future will get here quicker than you think. Take it from someone nearing 60.

The 401k is also about right now!  Want to pay less taxes?  I have four words for you:  four oh one kay.

How does it work?

The IRS allows you to put a certain maximum amount into the 401K every year.  For 2021, for instance, if you are under 50 years old, then $19,500 is the maximum amount that you can put into your company’s 401K.

That’s one side of the coin.  On the other side, depending on a bunch of factors, the IRS tells the employer how much they must contribute to the company 401K for each employee who participates in the plan.  This becomes quite complicated.

You don’t need to know the entire law; you only need to know the details of your employer’s specific 401K plan.  How much is your employer going to contribute to your plan?

How do you find this useful information?  Read the employee handbook, ask your HR department, ask a financial planner, ask your parents… you just need to ask someone!  The information might not be super easy to understand, but it’s available and necessary for you to know.

Only by having all the details can you ensure you don’t leave any money on the table!

In a very typical 401K plan, the employer will “match” 3% for any employee that participates in the plan.  What does this mean?

Say your salary is $75,000 per year at your new job.  $75,000 x 3% = $2,250.

This means your employer will put $2,250 into the 401K for you if you contribute the same amount from your salary to the plan.

Let’s put this another way: If you contribute at least $2,250 into the employer’s 401K plan, then that employer will also contribute $2,250 into that plan. Without doing anything other than setting aside 3%, you have made 100% on your money.  It’s crazy.  You cannot pass it up.

Health Insurance

There are some quite complex laws that mandate whether an employer must provide health insurance.  This is another example of how  you don’t need to understand the entire underlying law, you just need to understand what it is your employer offers.  Let your employer worry about the law, you worry about your health.

First questions you want to have answered: “Do I have health insurance at my work?  If I do, then what does it cover and how do it use it?”

If you need help understanding the complex terms of “deductible,” “out of pocket,” “wellness,” etc., you should ask your HR department.  They are there to answer your questions.  Or ask your parents, or ask a financial advisor. Insurance policies rarely seem to be written in straightforward English, so if you’re confused, don’t worry about it, and ask as many questions as necessary.

Before you say, “I’m young and healthy; it doesn’t matter” about health insurance, there’s one thing you should remember. Life happens… on it’s own terms.

Establish a relationship with a primary care physician early in your life and take advantage of the wellness provisions of your health insurance.  This provision can allow you to visit the doctor about once a year for an annual checkup at virtually no cost to you.  It may also allow you to get an annual flu shot at no cost.

Disability Insurance

This is just what it sounds like:  if you become disabled, this insurance will pay something.

What will it pay?  Ask HR for all the details first, of course.  Then ask your parents or financial advisor if you’d like more insight into that documented coverage.

You might be thinking, “I’m young and healthy; I don’t need disability insurance.” And that’s true: you’re young and healthy… right up until you’re not. And if life throws a curveball at you, you’re going to need that insurance coverage.

Statistically, young people are far more likely to become disabled than to die early.

Sidebar:  if someone tries to sell you life insurance, you need to keep this in mind. Life insurance is right at the right time, in the right circumstances, for the right people.  You want to ask a lot of probing questions before buying life insurance at a very early age.  

Other Benefits  

The menu of potential employee benefits is huge.  It depends on the company.  These benefits are, from the company’s perspective, for basically one reason:  to retain talent.  Employee benefits need to be analyzed, thought through, and understood. Ask a lot of questions to be sure you know what you have access to and can use those benefits appropriately!

Student Loans

These can seem scary, but develop the correct spending plan and you can see them through.

For some, the student loans may be so daunting that you can’t bear to think about it. But listen: not thinking about it is a very bad plan.

There’s an old saying:

Question: How do you eat an elephant?

Answer: One bite at a time.

OK, would you pay for that sort of advice?  Maybe not.

Is it accurate?  Absolutely.

Look up the difference between these two words:

Simple

Simplistic

There is a simple approach to paying off the loans, i.e. “one bite at a time,” which sounds simplistic (unreasonably simplified), but is actually a very sound strategy.

For many today, student loan debt is so huge that it’s hard to get your mind around it. Nevertheless, you must get your mind around it. It’s your responsibility. 

Understanding and addressing repaying your student loans starts with your spending plan. There are no easy shortcuts here. You gotta factor it in, and you gotta own it.

Dealing with this is a fairly specialized area; FS Financial Advisors can help

Financial Plan

When is the right time to begin working on a financial plan, and perhaps even working with a financial planner?  As early as possible!

Putting these largely long-term concepts into play just out of college can seem like a total downer—like the fun is being smothered out of life. You’ll find, however, that fiscal responsibility gives you more freedom than you imagine! 

The road map for a sound, secure financial future begins early in life.

Have we covered every life event related to getting out of college and getting your first “real” job?  No.  But this is a starting point.

The real story can only be told in the context of a real life being lived out in real time.  

Complex? Yes, absolutely.

Exciting?  You bet!

I look forward to you joining me on this journey. In the meantime, if you’d like to start your partnership with a trusted financial advisor today, call our offices at (214) 763-5167.

See this full article in PDF form by clicking here.

From the desk of David Freeze, CPA/PFS.