This week, Marketplace Weekend is all about life after college. In our series, "Graduating into the Economy," we have stories and advice for recent grads — everything from career and credit basics to dream outfits, houseplants and homes.
Millennials are currently the largest group of home-buyers, demographically speaking. More and more 20- to 30-somethings are thinking about having their own pad, where they can paint the walls whatever color they want, have as many friends over as they want, and put their money in a tangible, dream-come-true investment.
But making that dream come true is almost impossible for some, especially given a lack of housing, a flood of competing bids, and the reality of student loans and slow wage growth. Plus, buying a home usually involves taking out the biggest loan of your entire life.
How do you manage all these factors and figure out a way to achieve your goals?
We asked Delia Fernandez, personal financial planner with 23 years in the business, for her advice to young adults and recent college graduates:
1. Know where you're at.
"Look at yourself the way a lender would," Fernandez said. "How much income do you gross every month, before they start taking out taxes? How much do you already commit to debt? Maybe you have student loans or a car loan... And how much of your budget could you allocate to housing?
Once you figure out your expenses, you can figure out how much to save.
2. Start saving because "The Future" is sooner than you think.
"A big part of managing money is making sure that you put aside some money for the future, even in some cases when you don't know what those things are going to be. You can't spend every dollar you make — you're never going to have anything."
Maybe millennials closer to the upper end of the age spectrum are thinking about owning a home already, but recent college graduates may think home ownership is far away. But you could be saving for other projects, trips, and life plans. It's better to take control of your money and develop solid financial skills sooner, rather than later, according to Fernandez.
3. Save even if you don't have a steady job.
More young adults are working freelance jobs, are self-employed, or work in the gig economy. Fernandez still has a rule of thumb for those people.
"You always have to be ready, you have to be flexible and you have to have an emergency fund on hand. You've got to have two to three months of bare expenses set aside somewhere, ultimately, in case they lay you off. And if that happens, maybe you have extra roommates, maybe you've got the bank of mom and dad, maybe you can move back home. Nobody likes these things but how lucky is somebody who has a fall-back position, whatever it might be. Much better than not having a fall-back."
And even if you don't have a traditional employment trajectory, "you're going to still have a history," she said. Lenders will still be able to look at your tax returns and checking accounts to see that you're making money. "You have to be able to show that you can steadily support yourself."
4. Know your loans.
"Try not to take out a total amount of [student] loans that are more than what you'll earn the first year out of school," Fernandez said. This may depend on whether you're a liberal arts major or an engineering major, for example.
Once you graduate, you're responsible for these loans. Make sure you know what they're all about!
"People graduate but they really don't know what they owe, and they don't know what the terms of the loans are," she said. "They don't know what the payments are, or the interest rates, or how long they'll last.... You need to lay that out real quickly and figure out what that is, so that you can decide how you're going to approach paying those off."
1. Lose hope.
Housing prices are soaring, it's harder to get a permanent job, and you really want to live close to the action for the next couple of years. Is a future home an impossible dream?
"You might have to make some tough decisions," Fernandez said, " but it's not impossible. You'll have to make some trade-offs, like accepting your commute to work from the suburbs. Or you'll have to have an extra room and roommates to afford your apartment downtown. But you can figure it out if you have a plan."
2. Rule out renting.
"I don't think renting is evil but that means that you have to keep an eye on your budget even more closely to make sure that the landlord doesn't raise the rent too much so that you can still afford to stay where you are."
Renting will still require you to allocate your budget properly, especially if you have loans to pay off and rents are going up every year. Fernandez suggested renters spend no more than about 25 percent to 30 percent of their paycheck on housing, calculated before taxes are removed.
3. Forget to save anyway — even if you're not buying a home yet.
When opportunity comes a'knocking, make sure you can take it.
"Remember that you're going to have to have enough room in your budget to have extra cash on hand to take advantage of those opportunities," Fernandez said. "First and last [month's rent] on the next place that you move to, for example. So don't rent and spend every dime that you make on renting and entertainment because you're going to need some savings for that next opportunity."
"It's your money and your future," she said. The economic challenges of modern adult life loom large for many of us, some more than others. But there might be ways to make the money you do have get you the future that you want.
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