How Your Income is Expected to Grow After College
Most people don’t know what to expect when they graduate from college. That leads to spending and saving patterns that are less than ideal, and accumulation of debt can have catastrophic consequences in the long run. In your 20s, fresh out of college, everything is looking up—living from paycheck to paycheck doesn’t bother you at all as you can afford eating out, taking up a hobby and generally having a good time.
You should be aware, however, that right now you’re at the peak of your health, professional capacity and earning capability. Learning how to manage the money that you earn now can actually make a huge difference during your retirement years. These are all probably things that seem very far into the future, but the truth of the matter is – if you don’t start planning now when you’re at the top of your game, you’ll regret it when you aren’t.
Stick to the following tips, resist the ‘paycheck to paycheck’ mentality, and start working towards accumulating tax free cash flow that will benefit your financial situation tremendously:
1 Make a plan
Out of college, it might be tempting to take the first job that comes your way and stick it out. One promotion leads to another and so on, and before you know it what was “temporary” has become the centerpiece of your career. Be very clear about your goals and what you hope to accomplish. It helps if you subdivide your life into 3, 5, or 10 year periods and attach milestones to each of them that you make sure you’re sticking to. This will help you keep track of your aspirations.
2 Consider the industry carefully
Obviously, the biggest determining factor in earning potential is job choice. As a general rule men tend to go into engineering, computer science, management roles and director roles, and those jobs see fairly consistent pay increases year in and year out. Perhaps none of these sound appealing to you, but consider this – a high-paying position comes with a degree of independence that will allow you to freely pursue any hobbies and interests you have without worrying how you’ll make it through the month. Visit our “Degrees” tab for more information on projected earnings for different majors.
3 Take charge
Many people miss out on opportunities at work simply because they don’t ask upfront. If a position opens up at your company, approach your direct manager and voice your interest. Having a development plan in place will keep you from lingering too long at a position you find tedious and not challenging enough.
4 Save as much as you can
In the early years, life tends to be relatively uncomplicated, financially at least. There are no kids or a mortgage or aging parents to divert your attention, and for the first time in your life you have a “disposable income”. The tendency is to spend this money on nonessentials – eating out often, trading up for a flashier car, and treating yourself to new clothes or man-toys. Falling into this type of pattern is dangerous as indulging yourself quickly becomes a habit and it’s much harder to break it as you grow older. Ideally you should try to save enough to get your 401(k) company match: This is as close to free money as you’ll ever see and a good bar to set even if you find it challenging at first.
Key goals after graduating from college include putting enough money aside in your employer-sponsored retirement plan to get any company match, and saving at least 10% of your paycheck in a savings account for emergencies. All these things will start adding up with time.
Even if you’ve been lucky enough to land your dream job right away, be sure to stay up-to-date with the current trends and fluctuations of the labor market. Make sure your salary is updated accordingly every year – after all, you’re not volunteering. Research competitive companies of your current employer and interview occasionally for your current position with them. That ensures you’ll be aware of your worth in the marketplace and of better job openings – which could come with a corresponding title and pay bump.
Volunteering is still something you should be considering as it helps build up your credibility as a valuable employee within the company. Additionally, it can help you gain valuable insight and experience in a different division – possibly one that can result in a transfer and a pay rise. Promotions within a company always go towards the people who stand out through proactive participation in corporate activities.
One of the main things that can affect your income after college is a temporary falling out of the marketplace. There may be a variety of reasons that see young people stopping work altogether for anything between a few months to a few years, but this is something that can severely affect your CV and future employment prospects. Find a way to keep your foot through the door-working part time, freelancing, consulting, job sharing—this will help you maintain your network of contacts and keep your skills relevant.
Another tricky thing is to never let debt accumulate. Straight out of college is the time when you’re potentially left with a large student loan to pay off and (possibly) a few credit cards to clear. Make it a rule to not just make the bare minimum payments on those as the interest rate will pretty soon turn into a mountain of debt. Get a grip, cut back on your spending and knock out high-interest debt immediately before things have gotten out of hand.
People tend to get overwhelmed by the amount of money they start bringing in and quickly start indulging their hobbies and wants. Retirement is the last thing on your mind right now. After several years of hard work at college it can also be quite tempting to treat yourself to something you feel you ‘deserve’ like a nice car, luxurious holiday or state-of-the-art surround sound system. While there is nothing wrong in pampering yourself, you’ve got to be smart about it. Aim to always pay cash for these types of purchases and try to bump your retirement savings up to at least 15% of your income.