By Connor Doyle
So, you’ve crash landed in the middle of a city. There’s a funky road going somewhere and a lot of people you don’t know around you are singing and dancing. You’re confused. Last you remember you were safe at home, warm in your bed with your family surrounding you. What happened? College happened – a tornado. Winds whipped around you, you meet some odd characters, got turned in every direction, and have trouble remembering some of the finer details. But now you’re here, smack dab in the middle of Munchkin Country (adulthood) with no idea how you’re going make it down the yellow brick road (career path) to the Emerald City (retirement).
Metaphors aside, the financial environment that millennials find themselves in after graduation is one of the most complex and intimidating periods that has ever existed. The innumerable retirement plan choices, savings plans, healthcare options, investments, and mortgages, all coupled with debt from college, spells trouble for the average grad. Even if you finished with a business degree, it can be hard to figure out what the right choices for you are. You’re Dorothy lost in the Land of Oz.
Navigating the financial landscape can be treacherous, but the information to help you come out unscathed and with money is all around you. Here are some important tips to help you reach the Emerald City with enough coin to get a sweet apartment above the Wizard’s place.
Choosing a retirement plan can be tricky, but there are a couple guidelines you can follow. First and foremost, the golden rule is that if your company offers an employee match, you should take full advantage. It’s free money. Secondly, the Roth IRA is more advantageous than a 401k when you’re young. The main reason for this is that you’re taxed on the money when it goes in the plan rather than when it comes out of the plan, which is in stark contrast with a 401k in which the money goes in tax free but is taxed at your marginal rate when it comes out. With 40 years of investment growth and tax rates projected to rise in future years you’ll end up paying a lot less now through a Roth IRA than you will in the future when compared to a 401k. So to recap – if your company offers a match with a Roth IRA make sure to make use of that first. If your company only offers a match with a 401k, maximize your company match with the 401k then move to fill up your Roth IRA to whatever level you’re comfortable. You still want to have some money to pay off any debt you might have.
Debt can be one of the most intimidating things that a young Dorothy has to deal with – probably on par with those pesky flying monkeys. College loans are the most common form of debt that a new graduate will have. If you have multiple loans, speak with a bank to see if consolidation is right for you. Consolidating several higher interest rate loans to a lower rate can help save money on monthly payments. If you don’t have loans, you can use a credit card to help build a credit history, but be sure not to overload it from month to month. Not paying your credit card balance on time can not only reflect negatively on your credit score but can also be prohibitively expensive with high credit card interest rates. The small bits of debt now help to determine your credit score for the future.
Credit Scores, Oh My!
Your credit score is built from a number of things, but it mainly consists of all debt associated with your name and if you’ve made payments on time. Too much debt, not enough debt, and not paying on time can negatively affect your credit score. Things that can help your credit score include having some debt to prove that you can handle responsibility and making payments on time. Your credit score is important because it helps banks determine what interest rate to give you when you make the big purchases, including cars and homes. Saving a few percent on interest rates on these purchases can end up meaning thousands of dollars in the long run. Make your $40 credit card payment on time, save thousands. The Scarecrow doesn’t have a brain and even he thinks this makes sense.
In the end, all choices are your own. Whether you want to follow the yellow brick road to the Emerald City or run into the woods and join the Wicked Witch of the West, it’s all within your power. Your financial situation is unique and deserves its own consideration and decisions. Make sure to consult your local financial professionals to figure out your options and see what’s best for you.
Connor Doyle is a Senior Auditor at Wiss & Company. If you'd like to get in contact with him, you may reach him at 973.994.9400 or at email@example.com.