I graduated college in 2002, right in the depths of the tech bubble burst, but I left college with a big head since I already had a job - something many of my friends lacked. While I held a diploma for a BS in Computer Science in my hand, I had to settle for an IT job from the lack of good matches in my new hometown, but at least it was a job. (I was engaged before college was out and we had decided to live near my wife’s hometown. That limited my ability to seek jobs elsewhere.)
I was living it large with my $33k salary. I was free to live the way I wanted in my new apartment. I was making good money and I spent good money. I looked forward to every other Friday since that meant I would have the opportunity to further outfit my apartment. First, I got myself a new TV to replace my dinky 13″ I kept from college. Next, I needed a DVD player to take advantage of my new screen real estate. But a new TV and new DVD player require a new entertainment center, so I purchased a nice one to complement my design sensibilities. The entertainment center looked nice, but it was really empty, so I started to fill it with DVDs. Then my car died, so I was “forced” to go out and buy a new car.
In 4 months time, I went from college graduate with nothing but an outdated TV and hand-me-down everything to a “rich” guy who could buy anything he wanted. I was living it up and gathering all the things I desired because I believed I had such “surplus” income.
But in November, just before my 6 month anniversary, I was fired. The company I worked for was hurting badly and, being the new guy, I was the easiest to let go. Immediately, the gravity of my situation became clear: I was an unemployed programmer in a technology-unfriendly market with no meaningful savings, rent due, car payments looming over me, and bills piling up. After a month of fruitless searching, my fiancee and I both got jobs at JCPenney to make ends meet until I finally found a higher-paying position. Finally, in April, I caught a break with a helpdesk job that paid twice what JCPenney did (but still less than my old job). That job allowed me to springboard back into the recovering tech market and finally land a “real” job a few months later. It was a very humbling time that nearly cost me everything and it took me over a year to recover financially.
I graduated believing I was invincible. I was the hardest-working guy on staff and the most educated, but probably also the highest-paid. I should have seen it coming, but I refused to read the writing on the wall. I neglected to invest in the company’s 401(k) plan because I thought I needed the cash. I didn’t put aside much money because I thought I was immune to “rainy days.” I took huge risks and I got burned.
Graduates, you entered the real world about a month ago with big dreams and mounds of student loans. The market you graduated into looks a lot like the one I did and it carries many of the same risks. Being the “new guy” on staff, you are also the one who is most at risk of losing your job if your employer is in financial trouble. That is why you must start saving from your very first paycheck because a sudden downturn can blindside you and catch you at your weakest moment.
After I graduated, my father imparted me with the following wisdom, which I ignored and failed to employ. If I had followed his advice, I probably would have broken the $100K net worth barrier already. Let me share with you what he told me:
- Immediately save 10% of your paycheck -
Keep this money as liquid as possible. I recommend keeping much of it in a high-yield savings account so you can at least try to keep up with inflation. I use ING Direct Orange Savingsso I can access my money within 3 days, but I also keep some cash around the house and a few day’s worth in checking, just in case.
- Invest in your company’s 401(k) plan -
If you company has a 401(k) plan and matches at least part of your contribution, you’re only stealing from yourself if you don’t contribute. If and when you leave that employer, don’t cash out like I did (twice), because they’ll sock you with taxes and penalties. Instead, roll it either into a self-directed IRA or into your next employer’s plan. - And/or start your own IRA or Roth IRA -
If your employer doesn’t have a 401(k) plan or doesn’t offer matching, you might find more success by investing on your own. Do a lot of research before picking the company to host your IRA and make sure you aren’t paying them too much for the privilege of holding your money. - Sock away whatever money you have left at the end of the month -
Once all your monthly obligations are met, push what you have left over into savings. This could either be “rainy day” savings or saving toward a particular goal. Just don’t be tempted to go out and blow it all on your latest “need” only to find out you could have gotten something much better if you had only saved up a few month’s of surplus.
Unemployment is a very dangerous place to be, especially right after leaving college. You can choose to be stupid like I was and risk it all, or you can start out playing it safe until you have enough savings to afford to take a risk. If I had it to do all over again, I certainly would have done it differently. At least you still have the chance to do it right the first time.
Good luck!
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I had a very similar situation although I was working as a contractor at the time. In my youthful ignorance, I wasn’t doing a good job of saving early on because I had so many contracts that I was turning work away. When the bubble burst and the contracts began to dry up, I was left with very little running money and ended up having to a take job that I hated just to get by.
I think that sometimes it’s easy for us to forget that an emergency fund needs to not only be adeguate for small time “emergencies” and for living expenses when cash flow slows or stops.