Recent high school , please listen. You can get a good start on becoming financially secure by making just a few smart financial decisions right now.
An estimated three million of you will graduate from U.S. high schools in June. Many will receive loads of thoughtful advice from commencement speakers on a wide variety of topics ranging from the virtues of hard work, giving back to mankind and pursuing your dreams.
But you likely won't receive any guidance on how your financial behavior will have an impact on the future. I can't recall ever reading about a commencement address that focused on the importance of saving and investing. But just as one bad grade can compound and linger in a student's grade point average for years, poor financial decisions can have long-lasting effects too.
To help grads get their financial lives off to a good start, here are some tips to help you make wise financial decisions.
Start investing early and end up a millionaire
I recently attended a party to celebrate the high school graduation of a friend's son and, like many guests, I gave him an envelope with $100 as a gift. The total amount of these gifts easily could have been $3,000. Instead of spending this money — a real windfall for an 18-year-old — it could be invested.
Assuming you have at least $3,000 in earned income, you can invest in a Roth IRA account (or any amount up to the annual contribution limit of $5,500). An 18-year-old who starts a Roth IRA and adds $3,000 to it each year could build up a nice nest egg for retirement. Of course there are no guarantees, but if these funds earn seven percent annually, the Roth account could be worth and available in retirement, tax-free.
Live within your means
There is an old saying, "If you don't control your money, your money will control you." Good financial decisions start by spending money on needs, such as housing, food and clothing. Learn to distinguish "needs" vs. "wants," which include the cost of entertainment and the latest fashion apparel.
For those nights out with friends and other discretionary spending, set aside a certain amount of cash. Once the cash is spent for the month, you are done spending on "wants."
Use debt sparingly
Student loan debt in the U.S. totals more than $1 trillion spread over more than 44 million borrowers. If you will be attending college and aren't receiving financial aid from a scholarship or a grant, consider working part-time. While this may not be an option during as a freshman, you may be able to consider a job once you get the hang of college life.
A part-time job will help you develop your skills and possibly build your resume.
Conversely, don't buy into the myth that a credit card will help build your credit profile. Instead of being lured with a free t-shirt as part of signing up for a new credit card, buy your own t-shirt and build a credit profile by making timely payments on utility bills. That's a better choice than running up a credit card bill that you'll likely still be paying off long after the t-shirt is gone.
Understand the financial impact of choosing a major
Many students spend two or three years on one course of study, only to discover that they aren't interested in being an artist or a software developer. If you're in this position, it makes sense now to explore different career paths. Yes, there's some extra cost to switch majors or try a course in a different field of study. But there is certainly a greater cost to pay if you graduate with a degree that isn't the right fit.
Don't grow up to be the parent who says to their child, "Ah, if only I had known that at your age." Now you know. Making smart, and yes sometimes, hard, financial decisions now can really pay off later.
Mike DeWitt is a partner at Brightworth, an Atlanta wealth management firm with $1.5 billion in assets under management.
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