I arrived in New York with an Ivy League degree, a job at a prestigious consulting firm waiting for me, and no clue at all how to manage my money. My Economics degree and a summer internship on Wall Street had taught me how to think about global markets, but they hadn't armed me with the personal finance skills I'd actually need as a functioning adult. A year into life in the "real world", despite all outward appearances, I was broke.
If you're a recent grad, I bet you're entering your first summer out of college with a shower of advice from family and friends. You probably just want to get a cool job, move into an apartment with furniture that actually matches, and party with your friends. I'm sure that listening to more advice from someone who is older and claims to be wiser probably isn't what you want to do. But here it is anyway. My 30 year-old self sure wishes that someone would have told me not to do these five things when I was your age.
1. Don't Live Somewhere You Can't Afford
By all means, move to the big city. If you want to live in New York or San Francisco or LA, you should. Just find a room in an apartment you can afford. And "affordable" means no more than 1/3 of your monthly after-tax pay.
When I moved to New York, I signed the lease to a beautiful, newly renovated apartment in the Lower East Side that had a private outdoor terrace with stunning views of the Manhattan skyline. Even though I had a roommate to share the cost, I was still spending half of my take-home pay on rent.
Don't do what I did. Don't spend so much of your money on rent. You'll still have fun in your first apartment out of college if it's a few more subway stops away from the scene. And if you make a few solid friends in the big city, you can probably crash on the sofas of their swanky, overpriced downtown apartments.
2. Don't Act Like You're Rich
Only a few months into my professional career, I got a share of a beach house with my friends. It was a great way to get out of the city and bond with my best buddies who all shared the house.
The problem? Most of my friends worked in finance and could afford a vacation house. I couldn't. And realistically, no one in their 20's needs a vacation home, regardless of their occupation!
Moral of the story: If you act like you're rich at 22, you might be poor as dirt in no time.
3. Don't Excuse Your Reckless Behavior
Once I realized I was struggling financially, I went to my trusted older sister for advice. She is five years my senior and had also lived in Manhattan right after college, so I figured she could bestow a few tips.
She first asked me what I spent my money on. I told her it largely went to rent, and the rest went to weekend dinners out at restaurants with my friends, cocktails at our favorite bars, and taxis to and from all these places. Of course, she pointed out the obvious - I could afford to cut down on "fun". I rejected her advice and just told her she "didn't get it". At the ripe old age of 22, I was not about to give up my social life to start saving.
I was just making excuses. My friends and I could have spent time together without spending money. So, plan a few fun nights in every month, and you'll be saving money in no time. I can promise you that in five years, the distant memories of club nights out will be a lot less valuable than having a bit more tucked away in your rainy day fund or - gasp - a retirement account.
4. Don't Neglect Your Rainy Day Fund
Even though I traveled for work and my expenses were largely covered by my firm during the week, I lived paycheck to paycheck. After two years, I had barely saved enough for a down payment on a used car when I moved to California. That used Honda ate up all my savings, and I was lucky that I didn't need to put another down payment on an apartment. I couldn't have done it. I didn't have any financial cushion if times got tough.
The move to California showed me that saving for a rainy day - or to finance my life's goals - was non-negotiable. A good rule of thumb is to have enough money stored away and easily accessible to cover your expenses for 3-6 months. If you suddenly lose your job or have a large unexpected medical bill, you'll still be able to make ends meet. So take a few hundred dollars out of each paycheck and sock it away until you build that rainy day fund.
5. Don't Forget to Track Your Finances
In case you hadn't guessed it already, I was not tracking my finances in my early 20's. I knew that I spent about as much as I earned, but saving and investing were a foreign language to me.
Your 20's are the perfect time to build healthy financial habits. With the help of a personal finance app like Personal Capital, you can learn to keep track of what you spend against what you earn, owe, and invest. And when you start tracking your money, you'll want to grow your money.
Get Off On The Right Foot
Your first years out of college are by no means a walk in the park. You'll go from spending your time with friends and in class to working long hours for lower pay than you'll likely make at any other time in your life. But you don't have to make bank right out of college to be able to start saving up. Follow my five tips on what not to do, and you'll be taking the first steps to enjoy and afford life in the "real world".