By Alan Whitman
May marks the time of year when thousands of college graduates step off of college campuses and stride into the job market. The transition can be exciting and, for many, daunting. The path to financial independence for the Class of 2011 could prove difficult, especially with the persistence of a shaky job market for recent graduates. If you’re struggling to find advice for the recent college graduate in your life, here’s some practical advice you can use to help them build a solid financial foundation:
Pay down debts as quickly as possible
A recent study claims that the Class of 2011 will graduate as the most indebted class ever. A big debt may seem overwhelming, but it’s not impossible to overcome. Creating a plan to make reasonable payments on your debt can pay big dividends in the future. A good payment history shows potential employers and others who look at your credit report that you are committed and dedicated to servicing your financial obligations. You may also get better interest rates on products like cars, credit cards and homes in the future.
Save, save, save…even if it’s only a little
Most people will never have an excess amount of money to save without a little sacrifice. However, that shouldn’t stop you from starting a savings plan. If you remain committed to saving just a fraction of your income, you’ll learn to live without the money you put away. And you’ll begin to reap benefits almost immediately. The law of compounding returns, which allows your money to earn significant interest over long periods of time, is one of the biggest rewards of frequent saving. You can even find handy calculators online that show the growth potential of saving over time.
Good investments take time
Here’s the biggest advantage of most college graduates: time. Recent college graduates, unlike older investors, have the opportunity to make smart investments that appreciate over very long periods of time. You don’t have to try to hit a home run with every investment or feel pressure to make every investment that comes your way. Be strategic about the kinds of investments you make after graduation. In the long run, quality stock and bond investments usually outperform their riskier, short-term counterparts.
You can start planning for the future now
Having a financial plan, even if it only applies to the next few years, can make a big difference. In fact, financial plans are still useful when you have short term changes in your job, living situation, or financial status. Since it’s a document that should be revised and reworked periodically, a financial plan can continually act as a resource for pointing you in the right financial direction with each change in your life.
Best wishes to all of this year’s college graduates!
Alan Whitman is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley Smith Barney in Pasadena, California. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. An investment cannot be made directly in a market index. Past performance is no guarantee of future results. The view expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC. Member SIPC or its affiliates.