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Graduation Shock

Graduation from college is a big step that is both exciting and frightening. Along with entry to “the real world” of work comes the realization that you, and you alone, must be responsible for your finances. Many college students graduate to a bigger paycheck than they were earning in college, but soon realize that the money they are earning does not go as far as they had dreamed when they charged up those cards and borrowed heavily to finance their education.

Though most students graduate with the skills necessary to launch them on a career path, few are really prepared to handle the realities of life as a working adult. Gone are the two- week holidays, carefree spring breaks, and “dead days” to complete large or important projects. Instead, college is replaced by a grueling schedule of meetings and projects and relentless deadlines for reports that keep coming without the benefit of “dead days” On top of that is the sudden realization that the big paycheck they dreamed of is not going to provide the cushy lifestyle they had imagined.

The difference between gross and net pay is a sizeable and can provide the first shock to our newly minted employee. The amount of the check may seem large, but when the new graduate sees how much is taken out of that check the reality will dawn that this job pays to fund the government, social security, unemployment, and if they are smart a company pension plan. An offer of $30,000 a year sounds like a lot of money to a student who has been living on 8 to 10 thousand a year. The PaycheckCity.com website calculates a twice monthly yield of approximately $921.54 each. Now deduct from that amount any voluntary contributions such as union dues, retirement matching plans, health insurance for a spouse or child, a medical or child care savings plan, or IRA investment and the paycheck shrinks even further.

When it is time to sit down and pay bills an even bigger chunk of the paycheck will disappear. The biggest payment is usually rent. Dreams of that spacious apartment with beautifully appointed rooms are unrealistic. It may be necessary to have one, or even two roommates. With the added expense of utilities, groceries, the cable bill, internet access, car maintenance, and commuting costs eating away at their paycheck it isn’t long until they realize that grand paycheck isn’t going to go as far as their dreams had taken it.

Many students subsidize their education with student loans and charge cards. The six-month grace period on the student loans expire soon enough and takes another $150 to $300 per month out of that paycheck. To sustain expenses they are now incurring the student or recent graduate brings out the credit cards that are notoriously easy for students to acquire. It doesn’t take long for a student or recent graduate to become bogged down in more debt than their paycheck can handle. The charge card debt keeps growing adding to the principal interest, over limit fees, and any late fees on top of that. 

Another fantasy most students harbor is driving a new car or at least a much newer one than the student-mobile they owned previously. The expenses that go along with the payments for that smart car such as increased insurance, licensing, fees to park in the same zip code in which they work, and maintenance, seldom factor into the calculations he or she makes when considering what kind of car they would like to buy. If the new job takes them to a large metropolitan area such as New York or San Francisco, a vehicle is a liability. Even in less public transit minded cities than the metropolises mentioned, public transportation can be a much better choice.

Realistically, a new graduate should settle in and maintain the status quo for at least 6 months until they see exactly how much everything is going to cost and how well their paycheck covers those expenses. There is one bright note however - recent graduates can recoup some of their money by being aware of tax savings for job-hunting expenses such as resume services, mailing costs, travel to interviews, professional association dues, subscriptions to trade journals, moving expenses related to a new job, charitable contributions and possibly setting up a home office. To maximize the benefit of these deductions is to prepare for tax time prior to April 15th of the year after they graduate.

Graduation is an exciting time even though it can be a more than a little frightening. Minimize your financial surprises by working out a budget and keeping it on the conservative side. If credit card statements with large balances come along with your diploma, perhaps you should seek out the services of a credit counseling service. Before you get into trouble, speak with a finance expert that can help you set up a realistic repayment plan, reduce the interests and maybe even the principal amount due on those charge cards. To many students today graduate with overwhelming debt that follows them for years and reduces the joy they should be experiencing in their new life. Be a winner – start out with your finances in order. 

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