Stepping Out

Adam M. Grossman

IT’S GRADUATION season. Entering the workforce? Here are five steps to help you jumpstart your financial life:

1. Manage your debt. If you’re like many graduates, you have student loans. Depending on how much you owe, you may be wondering how best to allocate your new paycheck. Should you direct every available dollar toward your loans or does it also make sense to begin saving? While everyone’s situation is unique, I have two suggestions.

First, take the time to understand your student loans. Don’t just pay the amount shown on your statements. Instead, consider the rate and balance on each one, and then design a strategy to maximize the benefit of each payment.

You might also consider refinancing with a private lender. But before you do that, I’d learn about the federal government’s income-driven repayment plans. If this all sounds like a root canal, you could hire a student loan consultant, who will review your statements and show you exactly what to do. These consultants don’t charge a lot and could end up saving you quite a bit.

Second, don’t put savings on hold. Even though your debt load may feel overwhelming—and it may be at rates higher than you could earn on your savings—it’s important to build a cash cushion. This will give you financial flexibility and allow you to think longer term. It’ll also help you avoid turning to high interest rate loans, if you ever find yourself in a pinch. Most important, it will get you in the habit of living on less than you earn.

More broadly, try to avoid putting your life on hold because of your student debt. This is an increasingly common phenomenon. Instead, by making a plan, you’ll be able to sleep better at night and move forward with your life.

2. Consider total compensation. When choosing where to work, look beyond the salary. Yes, your pay rate is important, but many employers also offer valuable benefits. In particular, when considering job offers, look closely at each employer’s retirement plan.

Do they offer a traditional pension? If not, what does their 401(k) or 403(b) look like? Do they match contributions? If so, at what rate and how quickly does the money vest? If you’re going to work for a public company, will you receive stock options or restricted stock units? What other benefits are available—graduate school tuition, for example? And what does the company’s health plan look like? All of these could make an enormous difference, so be sure to choose a job based on total compensation, not just the salary.

3. Learn to work. One of the odd things about school is that they never teach you much about how to work. Rarely does anyone show you how to succeed in the workplace.

There are lots of theories on productivity, and I don’t necessarily endorse one over the other. Rather, I suggest reading widely to discover an approach that works best for you. The following four books are a useful starting point, even though they don’t always agree with one another: Grit by Angela Duckworth, Outliers by Malcolm Gladwell, Range by David Epstein and Atomic Habits by James Clear. If you don’t have time for an entire book, then I suggest one article, “Smarter, Not Harder” by Shane Parrish.

4. Know when to exit. Fifty years ago, the economist Albert Hirschman penned a small book titled Exit, Voice, and Loyalty. The central idea is that we all have three choices when an organization isn’t meeting our needs: We can leave (exit), speak up (voice) or stick around with our heads down (loyalty). While Hirschman’s book is somewhat academic, you can find similar concepts—in a much more colorful format—in Robert Sutton’s The Asshole Survival Guide.

The reality is, every workplace will be infected with some number of managers who are truly poisonous—yelling, swearing, insulting, throwing things, fostering internal competition—and you’ll have to decide whether to hang around or exit stage left.

5. Avoid “advisors.” At some point, one of your classmates will find his or her way into the insurance industry. And one day, that person will find his or her way to your doorstep. He or she will explain to you how it’s in your best interest to buy something called whole or variable or universal life insurance.

My advice: Run, don’t walk, in the other direction. In my work as a financial planner, I have seen innumerable people saddled with policies that provide too little coverage for too much money. In all but the rarest cases, I don’t think anyone should ever buy one of these products. According to one well-known financial blogger, upwards of 75% of people who buy these policies end up regretting the decision. If you need life insurance, in the vast majority of cases, you’ll be better off with simple, low-cost term coverage.

Adam M. Grossman’s previous articles include Math vs. EmotionDon’t Bank on It and Danger Ahead. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.

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