This guy will have no problems finding work. But as a hot life pro tip for fresh grads: keep 6 months expenses in the bank. Minimum. Don't spend on any ++ till you're set with this base safety net.
Good advice. Even better is to save 40-60% of every check with no intention of ever spending it.
I always thought it seemed too aggressive a policy until I hit my first round of financial hardship, and then it seemed so stupid that I hadn't abided it before.
Meanwhile, a friend of mine who does abide this rule just paid for his wedding and first home entirely as a cash transaction and hasn't incurred any debt beyond the credit cards he pays off every month.
Especially in today's day and age, stability is more and more precious.
I save about 60% of my paycheck with no intent of spending it, and I've found that it has the added benefit of keeping my life simple and helping me keep a distance from material possessions that I don't actually need (but would certainly be gravitated to if I had all this cash just lying around).
For me at least, I've been enjoying my relatively simple life of hiking/cycling with friends on the weekends and reading/learning from online resources and books from the library after work :).
Separately, and depending on when one buys a home that might not be the best strategy. I have the cash to pay off my home but I choose to take advantage of a low 3.25% mortgage rate to keep the money available for something else. Mortgage rates are very low now (once again I don't know when your friend did this) so it makes sense to take advantage of that.
Ironically that's the same advice I gave him. He bought shortly after 9/11 originally, and the rate was a ridiculously low 2.75% (which I think he paid down points to get).
I should probably clarify that he originally financed the home, just so that when he paid it off it would look great on his credit (though he already had near perfect credit at the time) -- he put 30% down, another small percentage in buying down points, then made the first few payments and then just paid it off because he preferred to just own it outright.
It's also worth noting that he could have, on paper, afforded to pay cash for a house that cost three times as much as the one he bought (which means he could have bought three of his same house and paid cash for each), so having the money available wasn't a big factor, though optimizing its dollar performance could definitely have been a factor.
Getting way off topic here, but paying off a loan early (especially that early) will often hurt your credit score more than help it, particularly if it it the only active personal loan you have on record.
I hadn't thought of that, but I doubt he cared terribly much, as he pretty much hates credit as a practice. I learned from that though, but I'm not exactly money-savvy, as I tend to care very little about it.
Yeah for the guy you're talking about it makes no real-world difference if he takes a minor credit score hit. But people who need to optimize their credit score for whatever reason should keep in mind that there are all sorts of events that may impact your credit score in ways that seem odd at first but make sense when you consider the scores aren't just about how likely you are to pay off debts, but a combination of how likely you are to pay off debts while also giving the credit issuers a enough profit off interest to make it worth their while to loan to you.
I'd love to keep 6 months in the bank, but my first job out of school was at a startup and I am not making a whole lot. At the moment I am lucky if I have 1 month in the bank, and it is not that I spend my money quickly, I simply live pay-check to pay-check at the moment.
Do note that about 40% of my pay check goes to paying off student loan debt, 50% to simple living expenses and costs, the last 10% goes into savings, generally so that I can afford a once a year trip back to Europe to see my grandparents/dad/cousins/uncles/aunts/siblings. So at the end of the year I have quite a bit saved up, and then I purchase a flight back home... that really hurts.
Is that 40% your required payment for SL? Especially with almost no safety net, you gain very little (and stand to lose quite a bit) by over-paying student loan debt unless you have a preposterously high interest rate.
The interest rate on two out of the three student loans is extremely high. My loans weren't government backed due to being a foreign national, so full private student loans. I am paying the minimum on two, and the highest one is getting paid about $200 more than minimum to get rid of it ASAP.
Consolidating wouldn't help, it would actually hurt me in the long run. So for now I just suck it up.
That makes sense. It sounds like you've got your stuff in order, but just in case I'd recommend running the numbers on that extra $200 to see if there's any place it could do you more good.
Would you change that suggestion if the fresh grad had near 100k in loan debt, some of which was private and high-interest? The benefit of 10k sitting in savings when it could pay off a savage Chase loan seem less great.
(To be explicit, that person is me, and I tend to throw all buffer money right at student loans before they grow like a hydra, faster than I can kill them.)
I did the damn-the-emergency-fund-full-speed-ahead loan repayment plan myself. You're basically gambling that you won't suffer a cash shock. That can be a reasonable gamble if you are e.g. well-insured, have very stable employment, have family support, have other income streams, etc etc etc. Otherwise, you'd consider the marginal 10% APR or whatever you're paying an insurance premium against a cash shock.
There is no circumstance where student loans will grow when you are actively making scheduled payments on them. Your balance will decrease monthly if you make your normal payments. Just mentioning that for sake of clarity -- some smart people I know don't necessarily have a lot of personal finance knowledge. Your loans will only grow if you either default on them or do something like triggering one of the income-contingent payment plans (which are a lot less good of an idea than people usually think, BTW).
Unsolicited financial advice: go to the institution you deposit your paychecks in and ask about consolidating student loans. (Another option, if you've been diligent about building your credit history, is taking a CC cash advance for a year, or take an unsecured loan. I'm getting unsolicited offers for either "1% fee, 0% APR for 12 months, then normal interest" from my CC at BoA or "9% interest, no fees" for signature loans from Discover at the moment.)
"I'm getting unsolicited offers for either "1% fee, 0% APR for 12 months"
Lotsa fine print in those offers as far as what happens if you miss a payment (interest rate could jack up and retroactive things might happen). May or may not be the case in the one you received. I remember always getting offers of free financing on things for a year and if you don't pay off at the appropriate time you owe all the interest retroactive.
In any case, someone wanting to follow that advice really would need to read all the fine print and understand all the fine print before making any decision. I wonder how many people could do that.
Indeed; these teaser rates make money for the banks when most people who take them snap up to the higher rate (by error or simply keeping the balance after the promotional period).
It's best to only take them when you can set up an automatic monthly payment, and zero the balance before the higher normal rates return.
(Personally, I'd also make it illegal to advertise "0% for 12 months" if accompanied by "3% transaction fee" on the insider/fine-print. That makes the effective 12-month rate about 3%, which should be the headline. But banks, lotteries, and perhaps even government schools have an interest in keeping most people from being too good at time-value-of-money/expected-return calculations.)
Thanks for the advice. Honestly, being that I work in startups, am a year and a half out of grad school, don't have to well-to-do parents, and support my partner, I think you've helped me realize it's definitely not so smart to be bufferless.
Honestly, part of this mania began when I looked at my statements for just one provider (Chase) and realized the minimum payments they were asking for (~$300) covered ONLY the monthly interest. That sort of freaked me out, and I got spooked at the prospect of allowing that bank to rent-seek on my back for the next few decades, while I lack any sort of consumer rights to even ask a court for bankruptcy protection.
Statement like this (details that is) prove what I am always saying about advice you read online. When I read your comments my first thought was what other safety net you had. If you had reasonably secure middle class parents I would give you different advice then I would if you had no safety net at all.
The answers to all these questions totally depends on details and when people are giving general advice there may be something that is left out that could change the advice greatly.
As an example, I generally fill my gas tank when it is down
to 1/4. But if I hear a storm is coming I fill up no matter what the level.
Even if you have expensive debt, you should aim to have some ready cash for whatever situations life presents. Paying down ten percent of that 100K will be the opposite of helpful if you find yourself unable to go grocery shopping or to cover a co-pay for X-rays on your twisted ankle.
Sure. At the margins, people make adverse health care decisions when they have no money, even if they're insured. Call it the flip side of moral hazard: co-pays, co-insurance, multiple deductibles, and all the other methods insurance companies have invented to be sure everybody has "skin in the game" and ensure economically rational decisions.
I have "good" health insurance, yet I'd have to pay a $150 "advanced imaging fee" for any X-ray (and, I believe, $1500 for a CT or MRI). What's the economically rational decision when you badly twist an ankle and ought to have it examined, but you expected to use that $150 for groceries?
The 6 months is what you need to cover expenses until you hit another payday.
If you have an in demand skillset like OP or can run to mom and dad for rent free living then you can reduce the total required with little additional risk.
Also, startups are more financially risky in unexpected sudden failure than most big-company jobs. Startups generally don't pay severance. There might be nothing to pay out.
Additionally, if you are unemployed you must get at least 45 minutes of exercise every day, and spend at least 4-6 hours on something career focused (skill building during the annoying latent periods of job searching) as if you were FT employed. Depression can turn what should be a 21-day gap into 21 weeks.
The best advice I ever had was: do something physical, something mental, and something spiritual every day.
For the physical, that can be as much as walking the dog at night or taking a brisk walk at lunch.
For the mental, you probably already have that covered since you're likely problem solving all day as a developer.
For the spiritual, you don't need to be religious, just take a few minutes out every day and either meditate, think about things, or, and this is my personal favourite, self-hypnotise [1].
Along the same lines, a little web app that I've found pretty useful for tracking all of the above (and thus helping to stay motivated) is http://tdp.me
Additionally, if you are unemployed you must get at least 45 minutes of exercise every day, and spend at least 4-6 hours on something career focused (skill building during the annoying latent periods of job searching) as if you were FT employed. Depression can turn what should be a 21-day gap into 21 weeks.
I didn't exercise. I don't regret it. I was unemployed in St Louis for 7 months. It was the most intellectually creative period of my life. I chose to pursue physics of my own accord and with no prior experience. I now have a clear idea of what, precisely, I want my life to be, and close to a six-figure salary. I'm saving up money for at least 6 months while I study very hard in my free time to get high marks on ACT/SAT and (hopefully) earn scholarships to attend a decent undergrad university, with the long-term goal of attending a graduate program at a top university. It's doable with about six years of work, which is no problem at all now that I know who I am and what I want out of life.
It's important to realize that it isn't necessarily best to choose to continue to work regardless of what you could be doing with those extra 50 hours per week. More than that, realizing that "choosing to work" is, in fact, a conscious decision rather than a given, is liberating. It has a way of making your life come into focus.
Your advice is good. I just wanted to share an alternative viewpoint.
It's also important to note that I was incredibly lucky to have the opportunity to not-work without becoming homeless. (On the other hand, it was because I had saved up enough money to do that. And if I can, then you certainly can. Consider it.)
>I'm saving up money for at least 6 months while I study very hard in my free time to get high marks on ACT/SAT and (hopefully) earn scholarships to attend a decent undergrad university
This tells me you're young. Depression didn't creep in on me due to a sedentary lifestyle at that age either. Our bodies age, and as you get older if you don't exercise or eat a healthy diet (for a very strict definition of healthy) you'll find lethargy creeping in. You'll have a harder time staying up, you'll find your body takes sleep when it craves it. When I was 18, I used to be able to stay up for 2 straight days and it wasn't a big deal. I'd spend a whole night coding, then go to work, no problem.
Those days are over, though. Now if I stay up all night coding, I have to crash for a couple hours before I start again.
The key isn't exercise so much as it's constant, positive activity. Exercise is one of the most reliable and fundamental forms of this, but there are plenty of non-physical ways to do it, too.
> And if I can, then you certainly can.
Be very stingy with this platitude. It is highly audience-dependent and false for a surprisingly large number of audiences.
