An earlier version of this article had the incorrect name and title for Carol Chan.
At a time when only online commencements are taking place, Cashay sister site BUILT BY GIRLS is giving its financial advice for the class of 2020. Through honest conversations, the team also debunks common money myths to ease the worries of recent graduates.
“I didn’t really start making money moves until well into my post-grad life. I waffled a bit when it came to getting my personal finances in order, let alone student loans, retirement savings, or anything else,” said Danya Sherbini, the community and programs lead at BUILT BY GIRLS. “And now it feels like I’m catching up when I see some of my peers doing really adult things like buying a house.”
While Sherbini can’t change her past, she hopes her experience will inspire new graduates to be more proactive earlier in their adult lives.
“I always thought I could just be young for now and the adulting would kick in later,” Sherbini said. “Looking back, that is not what I recommend to current students or 2020 grads. I wish I had started to get my financial ducks in a row earlier, so if there’s any advice I can give from the get-go, it’s this: don’t follow my lead and instead start now.”
Here are other five personal finance myths that Sherbini and the others from the BUILT BY GIRLS team want you to know:
Myth 1: Proper budgeting means only buying what you need, not what you want.
While budgeting serves as a means of preventing superfluous spending and carrying on extra debt, it doesn’t mean to rob you of all your fun.
“Instead of thinking of budgeting as a barrier to your fun, think about it as a way to enable healthy financial habits and plan within your means,” Sherbini said. “If you want to splurge on some new clothes or the latest iPhone, that’s totally up to you! The key is to work these expenses into your budget from the beginning, so that you can plan for them and still budget for other types of expenses.”
Healthy financial habits also means setting aside a consistent amount per paycheck.
“In fact, it’s important to strike a balance between spending on necessities, splurging on fun expenses, and saving towards your financial future,” said Carol Chan, who leads brand and content at BUILT BY GIRLS. “Most financial experts recommend the 50/30/20 rule.”
The 50/30/20 rule simply means that 50% of your income should go to necessary expenditures such as rent, food, utilities and other bills. Another 30% can be spent on fun stuff, like ordering takeout or buying clothes. The last 20% should be spread across long-term goals, such as savings, retirement, or paying off debt.
Myth 2: I’m too young to start saving for retirement.
It’s never too early to start saving for retirement, according to the BUILT BY GIRLS team. About 73% of Gen Z and millennials already contribute at least 3% of their monthly salary to retirement, according to Betterment.com.
“The big secret is: The younger you start, the bigger the advantage you have,” Chan said. “It’s a simple concept and once you know it, you can’t unsee it.”
Young savers benefit more from compounding interest, which is interest paid on previously earned interest as well as the original principal. The longer your interest can compound, the more money you will earn over the years.
For example, say someone who’s 25 puts away $1,000 a month for 10 years at a 7% interest rate. By the time they turn 65, the person will end up with over $1.4 million, according to Chan and Sherbini.
Meanwhile, someone who saved the same amount at the same rate, but started at age 35 instead, will end up with $700,000 instead when they turn 65.
“It’s not about how much you save every month, so don’t think you have to put aside a hefty sum,” Chan said. “But it’s more important the amount of time you let your savings compound on each other or ‘accrue.’”
Just saving a small amount early in your life can help make saving for a retirement a habit, Chan said. If your job has a 401(k) retirement plan, which is funded by pre-tax earnings, you should try to contribute as much as you can and take advantage of any employer match.
Myth 3: Having a credit card will just get me into debt.
While some people may worry that a credit card is a one-way ticket to debt, the BUILT BY GIRLS team assured new graduates that it’s a helpful tool to build a good credit history.
“Here’s where things get weird: Building credit is actually a good thing,” Sherbini said. “And having a good credit score is actually important for big things you may want to do in the future, like renting an apartment or applying for a loan.”
A credit score is a three-digit number calculated from your track record with debt. It tells lenders if you’re a less risky borrower and sets the terms of your loan or credit card. A FICO credit score is calculated using the following:
Payment history (35%)
Amount owed (30%)
Credit history (15%)
New credit (10%)
Type of credit used (10%)
But how can one make sure they maintain a healthy credit score without accumulating debt? Chan said it first starts with making sure you’re picking the right credit card for you.
“Some credit cards have annual fees, but there are a lot of options that don’t,” Chan said. “Assess your options based on factors like the fees and spending limits, not just on the perks like bonus miles even though that’s a nice perk. And be sure to read the fine print before you apply!”
Another way to make sure you’re on track is to only use your credit card for necessary expenses you can afford.
“Once you have your credit card, use it for routine monthly purchases that you know you can afford, such as groceries, your Netflix subscription, or your monthly utility bills,” Sherbini said. “Try to avoid using your credit card to make big purchases that you don’t need and can’t afford, like expensive concert tickets or designer clothes. “
Myth 4: I’m too inexperienced to negotiate an entry-level job salary.
Many recent graduates may worry that they aren’t in a position to ask for more money when seeking a new job. Only 39% of new employees negotiated their salary during a job offer.
But the BUILT BY GIRLS team recommends negotiating as early as your first job. The worst thing an employer can do is say they can’t increase the salary.
“As a recent graduate, it’s understandable that you may feel inexperienced. But this doesn’t mean that you can’t negotiate the salary on a job offer,” Sherbini said. “In fact, most companies expect you to negotiate. So you should feel empowered to do so when you get a job offer and the pay rate or salary isn’t what you want.”
So how should you negotiate? Sherbini said it starts with knowing your worth and the industry’s pay standards.
“You should know what the common salary is for the job you’re applying for,” Sherbini said. “Factors that go into this include your job title, level, experience, degrees, industry, type of company, or city that you live in.”
She recommended sites like Glassdoor, which have this information populated for you. In addition to Glassdoor, she advised new graduates to figure out their worth by talking to people in their field, especially since pay disparities between men and women continue to exist.
“A great way to get a sense of salary or future earning potential is to talk to people in your desired role or industry,” Chan said. “Or, you can talk to your peers who are also starting entry-level jobs right now.”
Myth 5: I’ll never pay off my student loans.
As student loans reach a high of $1.35 trillion, many new graduates worry they won’t be able to pay off their loans.
But personal finance expert Tiffany Aliche, otherwise known as the Budgetnista, said mindfulness can help make this a possibility. Start off by reducing your expenses outside of mandatory debt such as student loans.
“I want you to be mindful to minimize how many new bills you introduce into your life,” Aliche said. “There’s some bills you can’t help, like your student loan bill, that’s understandable. You certainly can help how you purchase a car or where you live and how you pay for that.”
She also recommended moving back home with your parents, if you can.
“If you are able to move back home with your parents, consider doing that and saving,” Aliche said. “Saving is going to be your strongest friend and the strongest foot to step out on when you enter into financial adulthood.”
The BUILT BY GIRLS team also emphasized that personal finance doesn’t need to seem like a chore, especially during the pandemic. It’s important to have fun with the process.
“Don’t forget to go easy on yourself and treat yourself every once in a while if you can,” Sherbini said. “There’s a lot going on in the world right now, and being stuck at home can be tough, whether you spend money or not, make time for yourself and for doing the things you love.
Read more information and tips in our Budgeting section