Earlier this year, C-VILLE conducted a highly scientific survey that asked upcoming graduates to weigh in on how they were (or were not) prepared for what life would bring them post-grad. And while most of them said boiling an egg, hanging something heavy, and hemming their pants were challenges they’d face with no problem, when it came to checking credit scores, doing taxes, and taking out a loan, well, they admit they could be studying a bit harder.
Lucky for the 2012 grads, most of that can be accomplished online. What’s a little trickier, according to David Marotta, president of Marotta Wealth Management, is the lifestyle they’ll need to become accustomed to once out of college. Here are a few financial tips to remember—even if you’re not a recent grad.
Living below your means gives you peace of mind.
Only spend 65 percent of your take-home pay. The remaining 35 percent should go to investments and savings—like the “unknown unknowns,” as Marotta calls them.
“When people ask, ‘Like what?’ I say, ‘Exactly,’” he said. The unknown unknowns could be anything from a trip to the vet’s office, a car repair, or something even simpler.
“When I was first married, we moved into a house and I realized I needed a broom,” he said. “I didn’t have $15 for a broom at the time. At every stage of life, there’s going to be a surprise like that.”
The best credit score you can have is a lot of money in the bank.
Credit, Marotta said, doesn’t build real wealth. “I’d rather have $10,000 in the bank than have a good credit score,” he said. “It’s not a measure of wealth.” If you’re looking to buy a car and want to take out a loan (which you’ll need a credit score for), think again. Marotta advises his clients to make the downpayment in cash.
If you feel you need a credit card, get one, then lock it down. A credit freeze will keep any outside parties from being able to access your score, protecting you from credit and identity theft. (And heed these words from Marotta on credit card debt, while we’re at it: “Someone who’s been in debt for 25 years, had they not had to pay interest on those cards, they’d be a millionaire.”)
Default to savings, not checking.
If you make $4,000 per month, automate it so that only $3,000 of that goes into your checking account. The remaining $1,000, you should put into a taxable investment like Charles Schwab or TD Ameritrade. The amount you’re able to save will likely be small when you’re just starting out, but it’s important to start as soon as you can. “For every seven years you delay savings, you cut in half the amount you’ll have for retirement,” Marotta said. And with inflation, 20-somethings will need about $8 million in retirement, so start now.
There are two best times to save, Marotta said: before kids and after kids. Once you have children, your spending changes and it’s harder to commit to saving. It’s best to get a jump on it right after college, when you still have time to build up capital.
“Wealth is not always a difference in earning,” Marotta said. “It’s a difference in spending.”