Practical Financial Advice for New Grads

It’s no secret that many recent graduates—and young people in general—have moved back in with their parents due to the current financial climate. In Austin, as in other large cities, housing prices have soared in recent years, making it challenging even for adults who are well-established in their careers to afford homeownership.

Add to that the sky-rocketing costs of a college education, which has increased 747.8% since 1963, and you have a very difficult situation for new grads indeed. Burdened with hefty student loans, stagnating wages, and a runaway housing market, how is a new grad to find his or her financial footing?

One of Amplify Credit Union’s Community Loan Officers, Alex Rodriguez, has firsthand experience with this very question. His son Diego is a senior at the University of Texas at Austin. With a graduation date coming soon, Diego and his peers are all asking the same question: “What next? How do we handle life after graduation?”

Alex and his wife were happy to respond. “As parents, we both want the best for him, so he can save and continue to invest in himself—just like how we valued higher education for him, we want him to be a homeowner and to build his own wealth.”

The family sat down and put together a financial plan for Diego. They shared this plan with us, hoping it could help other new grads who may be facing similar dilemmas!

First, Find Employment

Alex was happy to talk about his son and his experience: “As a proud father, I could never limit myself to stop bragging about him!” Like many new grads, Diego is in the process of looking for full time employment as he finishes up his senior year. With a major in English Education, he completed his first paid internship as a teacher aid at Breakthrough Central Texas, and is in the process of applying for a middle school English teacher position at Austin ISD.

But Diego and his friends are worried about more than just finding a job—they’re also worried about finding affordable housing post-graduation. As Alex described, “They are all having a hard time finding an affordable place to live with their starting income. It seems impossible.”

Move Back Home, if Necessary

Like most young adults, Alex’s son loves his independence. Diego currently lives in amazing UT housing with great meal plans. But, Alex said, “It’s hard for him to realize that is coming to an end. Moving home might be his only option.”

Alex continued, “As parents, we both want the best for him. We want him to be able to save and continue to invest in himself. Just like how we valued higher education for him, we want him to be a homeowner and to build his own wealth.”

With housing prices at an all-time high in Austin, immediately starting out on his own is just not possible for Diego at the moment. Rather than spending more than half his starting income on rent, parents and son came to an agreement: Diego would move home to save money and follow the financial agreements the family came up with together.

Follow the 50/30/20 Rule

For many, budgeting is the key to financial independence—first by evaluating how much income is coming in every month, and then carefully choosing where and how that money will be spent or saved. The Rodriguez family recommends following the 50/30/20 rule.

This budget is structured by three different buckets:

• 50% Needs: This includes all the things you can’t live without. For instance, housing, food, transportation, basic utilities, medication, etc.
• 30% Wants: These are the things you could potentially live without, although life would be less fun. This 30% of your income includes purchases like subscriptions, going out and entertainment.
• 20% Savings: This is the bucket that will help you achieve a specific savings goal—putting 20% of whatever income you have into a special savings account. It can be used for a down payment, for retirement, or several different goals.

In Diego’s case, he set up multiple accounts for each of these buckets to help him reach his goals. He opened separate checking accounts for his “Needs” and “Wants” categories to make it easier to differentiate which funds are for what purpose.

Practice for Independent Living

An important part of this plan is preparing Diego for what financial independence will look like in reality: rent and bills!

His parents turned “rent” into an opportunity to boost Diego’s savings. Alex noted, “We made an agreement to help him save for a down payment on a home: we will make it seem like he is paying us rent, but the funds would be transferred to a separate savings account where he doesn’t have easy access to it. In about two years, he should’ve saved enough for a good down payment on a house–and by then, we both hope the housing market is more stable and affordable.”

And to better prepare him for the realities of being out on his own, they also had him choose one of their utility bills to pay. As a gamer, Diego prioritizes fast internet—so he chose their cable / internet bill.

Establish a History of Good Credit

Establishing a consistent budget and savings habit is just the first step. The Rodriguez family also helped Diego establish a history of good credit.

“We signed up for a credit monitoring program, and he had no credit,” said Alex, “So we searched for the best first credit card for him. Our goal is to establish an excellent payment history. He was approved for a student credit card, and he made a commitment to use this card for only gas and groceries. He will pay off his credit card balance every month and establish a good payment history.”

This is a crucial step because credit history displays how reliable a person is when it comes to paying back money. With a better credit history, securing a low interest rate on a mortgage loan becomes more likely, helping Diego receive more favorable loan terms on a mortgage when he’s finally ready to purchase a home.

Stick to the Plan for Long-term Success

As with any financial goal, creating a plan and sticking to it is key to achieving success. While moving back home, sticking to a budget, and establishing a history of good credit might not be the exciting leap into an independent lifestyle that Diego or any of his college classmates might have imagined, it is practical advice that can help set any new grad up for future financial success.

Alex summarized the overall plan and the outcome with these words: “Not only will moving back home help Diego, especially in these uncertain times, but by having a plan in place, once things are better, he’ll be in a good position to build a foundation of wealth for his future.”

If you have children who are about to graduate, sit down with them today and make your own family plan! It will look different for every family, but the important part is creating a financial path for your kids.