Broker Check

Pomp, Circumstance...and Debt?

| June 03, 2016
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College Savings

Graduating college is exciting for everyone. For students, it's the culmination of four years of hard work, sleepless night and countless cups of coffee. For parents, it's the final step in the evolution from child to adult. They're officially "all growed up."

However, as joyous and uplifting as graduation is, the real world awaits and, to summarize a harsh reality, it's a tough and unforgiving world out there, and it doesn't stop for anyone.

Regardless of these young professionals' zeal, the reality is the job market is unpredictable and, more likely than not, many grads are fiscally unprepared—or disadvantaged to say the very least. Andy Josuweit, co-founder of Student Loan Hero, cites a NewAmeric.org study's claim that, 

"Americans owe nearly $1.3 trillion in student loan debt ... [and] the average Class of 2016 graduate has $37,172 in student loan debt, up 6 percent from last year."

When taken at its face, stats like these might worry any graduate, regardless of potential employment prospects post-graduation. However, couple these with the mounting crisis that threatens future Americans' retirement savings, and it becomes much simpler to understand why college graduates need to start taking fiscal responsibility sooner rather than later. 

Compounding Crises

Some call it a "crisis." I've heard others refer to it as a "growing problem." Regardless of the vernacular, there's no denying that saving for retirement is becoming more difficult—possibly harder than ever before. Unlike my generation, a large majority of Millennials – and possibly subsequent generations – will be burdened with building their retirement savings almost completely alone. According to an article published by Bloomberg News in October of last year:

  • Half of U.S. workers lack company-sponsored retirement plans
  • Only 45 percent of businesses with fewer than 100 employees offer 401(k)s

And how is this lack of employer-sponsored retirement plans affecting the workforce? Currently, the average working household has next to no retirement savings. The average American between the ages of 40 and 55 has an average savings just north of $14,000, but they estimate they would need nearly 20 times this balance to survive comfortably by the time they retire. Tony James, president and COO of the asset-management firm BlackStone, explains in an article in CNBC:

"The fact is that today's stagnant wages, rising health, rent and child care costs, and massive student loan debt serve as tremendous obstacles that inhibit Americans from building a strong retirement foundation."

However, there's hope at the end of the tunnel. With the proper savings plans and a commitment to building long-term wealth incrementally, our recent grads will be ready to tackle retirement savings before they're old enough rent a car!

Save Early, Save Often

If you're a recent college grad, I know you have a variety of concerns, and I also know that saving for retirement is not anywhere near the top of that list. However, most recent grads and young professionals have a tendency to constantly push long-term savings further and further down the to-do list.

That can be dangerous. 

Planning for retirement needs to start early, but it doesn't have to be done in huge, lump sum payments. As pointed out by The Wall Street Journalsaving $10 a day beginning at the age of 25 will net you more than $1 million by the time you're 65, assuming an 8 percent annual rate of return. Start just 10 years later at 35, and those savings will be cut by more than 50 percent. So, save a little here and there until you get on your feet and feel more comfortable with large contributions. 

Pay Off Student Loans

I know it sounds obvious, but so many young professionals become entrapped in a never-ending cycle of debt that can haunt them for decades—literally. It's very important you make debt repayment a top priority in your life just out of college.

Make a list of the money you owe, and focus on one of them. Preferably begin with the debt with the highest interest rate. This will ensure you don't continue to accrue additional debt on top of what already exists. Barbara Freidbeg, best-selling author and business consultant, hammers this home on her blog

"It’s also important to realize that you will not succeed at paying off your debt if you don’t stop accumulating more of it. As your debts are getting paid off, roll over your debt repayment money into the next debt..."

Start a Budget

Saving in college is different. Budgeting in the real world entails a lot more than saving for a few nights out with some friends or the occasional lunch on the weekend. Now, your paycheck might be bigger, so you may be tempted to treat yourself to a few more nights out and maybe nicer lunches on the weekend.

Resist. 

The reality: Whatever you spend, you can't save. Avoid lifestyle inflation as much as you can. We spend four years training ourselves to live on part-time salaries at best. Sit down, lay out all your expenses including your debts, and try to stick to that same frugal budget. Things to consider:

  • Renting instead of buying 
  • Finding a roommate 
  • Learning to cook 
  • Buying goods used instead of new

These small tips can go a long way to saving, removing debt, and helping save for our long-term goals.

John Lindsey is President and CEO of Lindsey & Lindsey Wealth Management. After years of experience in executive leadership and finance, John founded Lindsey & Lindsey Wealth Management in 2012 to better serve his client base with an expanded universe of investment offerings. His biggest piece of advice is to always stay true to yourself and never compromise when that compromise would endanger your principles.

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