Graduates – Welcome to the Real World!

graduates welcome real worldToday I am happy to share a guest post from Syed at The Broke Professional. In this article, Syed examines the many financial challenges faced by recent graduates. Please be sure to share your thoughts and feedback in the comments section.

Times they definitely are a changing. I’m pretty sure it was someone who grew up in the Southern US who said that, but it applies to the whole world at the moment. And it couldn’t be more true for those that are graduating with a professional degree. Be it a new graduate in medicine, business, law, engineering, dentistry or optometry (my profession of choice), there is a whole different world to face after the years of living in the university bubble. And it can sometimes be a cruel world. Now I’m not trying to garner sympathy for these new graduates. After all they usually end up in pretty high paying jobs with plenty of room for advancement. But there is also a unique set of challenges newly minted professionals face that they should be aware of.

Lifestyle Inflation

This is arguably the biggest reason for professional graduates getting into financial trouble. To become an optometrist, for example, you have to complete your prerequisite classes in college and get a Bachelor’s degree along the way. This usually takes about four years. After the grueling process of applying to schools and flying out for interviews, when you finally get accepted into an optometry school, four years of even more intense studying and clinical work await you. After completing these four years (and passing the nerve wracking board exams), you are finally free to find a job or open a practice and finally start making some money.

After years of schooling and (hopefully) living like a poor student, it’s only natural for one to get in the I “deserve” this mindset right out of school. As in, I “deserve” a new BMW because of all the work I put in (along with the $700 monthly lease payment). And I “deserve” a sweet new fancy townhouse since I’ve been living like a pauper the past few years (and the $2500 monthly payment plus maintenance that goes along with it). The examples of treating yourself or keeping up with the Joneses are endless. With inflation eroding buying power over the years and incomes not rising in the same manner, a dollar doesn’t buy as much now as it did 10 years ago. This is an essential point to realize, as simply having a certain title doesn’t enable you to get the goods right out of the gate.

Student Loan Debt

The issue of the high cost of tuition and subsequent massive amounts of student loan debt is a hotly debated one. And for good reason. Tuition is increasingly rapidly year after year, widely outpacing inflation. College was once thought to be an essential stepping stone for success. Sky high tuition prices are making many rethink that. While student loan debt is a big problem for all students, it is an especially big one for professional school graduates. For the graduating class of 2012, the average student loan debt was $29,400. This is not an amount to sneeze at, but I probably incurred that much debt sitting through my first 5 classes in optometry school.

While my final student loan debt (undergrad and optometry school) was around $140k, many of my colleagues were well into the $200k range. So my student loan debt was almost 5 times the national average. That’s a huge discrepancy and a problem that needs to be tackled hard. Many students, myself included, underestimate the effect of student loan debt while in school. And who can blame them? With tests every week and sweat inducing clinical practical exams to prepare for, who has the time to prepare for life after graduation?

Student loan payments will make up a substantial chunk of a new grad’s monthly payments. In a lot of cases it can be the largest payment one has to make per month. And if the banks have their way, this will continue for decades. That can end up being tens of thousands of dollars in interest payments. That’s money that you earned but you will never be able to use because it is lining the coffers of the country’s biggest banks (as if their coffers need more lining). Students and new grads should be prepared for the hit that student loan debt brings and get ready to hit right back. This means cutting back on your consumption and throwing whatever extra money you can towards your highest interest loan and then moving to the next one (also called the Avalanche Method). If you can be diligent in this process, you can reduce the time you pay student loans by years and save thousands and thousands of dollars in interest payments.

Building a Good Credit Score

Unfortunately, the importance of a good credit score is lost on many. Most people don’t know the difference between a credit score and a credit report, and why they should even bother checking them. I’ve noticed that this is especially widespread among new grads, as they’re focusing on finding their place in the world and spending their new found money. Eventually, most people end up applying for a mortgage or a car loan. Even if it’s not in the near future, it will most likely happen. This is the best time to improve your credit score, as it can potentially save you tens of thousands of dollars over your lifetime.

Applying for a mortgage or credit card will initiate a credit inquiry by the lender. They want to look at your past history to make sure you’ll pay them back. Instead of hiring a private investigator, your credit score gives them this info in a nutshell. A low score means you’re not a good borrower. You get the highest interest rate possible on your loan so the lender can recoup their loan quickly. A high score means you are a pretty dependable borrower, so you get the lowest interest rate offered. On a big purchase like a house, the difference between a low interest rate and a high interest rate can cost you potentially hundreds of thousands of dollars. That’s a lot of cheddar. Giving your credit score some attention even for just a few years will get it right where it needs to be. Focusing your efforts on improving your credit score can really pay off in the long run.

A professional degree isn’t a ticket to a lifetime of riches like it used to be. Many new grads are falling into financial trouble by not paying attention to these three big issues. If you can weather the student loan debt storm and resist lifestyle inflation early in your career, you will be setting yourself up for a lifetime of success.

What do you think of these challenges faced by new graduates of professional schools? Do obstacles like student debt diminish the value of obtaining advanced education? Any additional tips for graduates entering the “real world”?

Syed runs a personal finance blog at thebrokeprofessional.com and currently works as a full time optometrist. With his interest in personal finance and professional school experience, he focuses on educating new graduates on the financial transitions into the real world. He especially hates student loan debt and credit card debt. He loves using credit cards for cash back and cheap travel. He loves spending time with his wife and son, and is also a die hard New York Giants and Knicks fan.

I’m trying to drive up my Twitter followers, Facebook Likes, and E-mail subscriptions. You can also follow along via Google+, BlogLovin, or RSS. Please help me reach my goals by selecting one or all of these options!

Image courtesy of aketvora at Flickr.

18 Responses to Graduates – Welcome to the Real World!

  1. Little House April 7, 2014 at 7:01 am #

    Personal finance should be a required course in high school and then again in college. I think too many young adults (or adults of any age really) have limited financial knowledge and are easily susceptible to life style inflation and accumulating mounds of debt. There are definitely some new challenges facing grads today, but I don’t think it’s much different than generations of the past, except for the excessive student loan debt.
    Little House recently posted…Second Quarter Goal ProgressMy Profile

    • Syed April 7, 2014 at 7:23 am #

      Some type of personal finance education or awareness is definitely needed. I have met too many financially clueless people during my years in school. Student loan debt is a huge new challenge to overcome as well as lifestyle inflation. Thanks for the comment.
      Syed recently posted…The Infinite Monthly Payment LoopMy Profile

  2. krantcents April 7, 2014 at 7:03 am #

    Being a new graduate is exciting if you have a job! Otherwise, I guess I would move back home. I love the optimism of just s tarting out again.
    krantcents recently posted…Why You Will Never Be Rich!My Profile

    • Syed April 7, 2014 at 7:24 am #

      Moving back home is definitely an option some new grads should consider, especially if the cost of living in their area is high. It can really get your financial life started in the right direction. Thanks for commenting.
      Syed recently posted…The Infinite Monthly Payment LoopMy Profile

  3. Jon @ Money Smart Guides April 7, 2014 at 4:15 pm #

    After college I got myself into credit card debt. Not from lifestyle inflation but because I couldn’t find a job and ended up getting depressed. Buying things made me feel better about myself. The problem was that I didn’t have the money and just kept getting further and further into debt. One day I realized that the “high” buying things was giving me wore off quickly and that it wasn’t the solution to my depression. I started to work on loving myself and then I was able to start digging myself out of credit card debt.
    Jon @ Money Smart Guides recently posted…My Personal Capital Review: Is This The Answer For Investors?My Profile

  4. Untemplater April 7, 2014 at 11:53 pm #

    It’s a competitive world out there and it’s unfortunate that college degrees are so expensive. But I still think they are worth it if your goal is to work for a corporation that has minimum requirements. Education opens doors, even if they don’t open as fast as they did in the past.
    Untemplater recently posted…Financial Advice For Self Employed Solopreneurs And Side HustlersMy Profile

    • Syed April 8, 2014 at 7:31 am #

      Education is still one of the best deals around, but with tuition rising the way it is, it is important to put some thought into what type of profession you are trying to get into. Lots of schools are now making putting out numbers about how quickly their grads are able to get a job in certain fields. Even school realize the importance of choosing the right major.
      Syed recently posted…It Might be Time to Cut the CordMy Profile

  5. Jen @Sprout Wealth April 8, 2014 at 3:54 am #

    Personal finance should be a part of school curriculum as early as possible. Many graduates, I believe, are with a wrong mind set thinking about what they deserve after all the hard work. Contentment can be hard to come by if “I deserve” will be a way of life and likely, that will be followed by a lot of “I owe”.
    Jen @Sprout Wealth recently posted…How to Use Game of Thrones to Sprout WealthMy Profile

    • Syed April 8, 2014 at 7:33 am #

      Personal finance education should definitely be a part of early learning. It doesn’t even have to be a formal class taught by a teacher. They could simply put together a set of great books and online resources and have the students answer questions and report back their findings. Anything to get their financial awareness going. Thanks for the comment!
      Syed recently posted…It Might be Time to Cut the CordMy Profile

  6. Andrew@LivingRichCheaply April 8, 2014 at 8:34 am #

    I’ve seen the lifestyle inflation in graduates…sometimes they inflate their lifestyle even before graduation thinking that they’ll pay for it when they graduate and get a job. And they pay for nice things like vacations/cars with student loans. Not a good idea. I understand that after going to school for so long, you think you “deserve” it, but the best thing to do is to continue to live like a college student for awhile and save up some money.
    Andrew@LivingRichCheaply recently posted…Is it REALLY Okay to Take Paternity Leave?My Profile

    • Syed April 8, 2014 at 1:39 pm #

      That’s the problem in a nutshell. And unfortunately it seems like the norm for new grads. Thanks for the comment.
      Syed recently posted…It Might be Time to Cut the CordMy Profile

  7. DC @ Young Adult Money April 8, 2014 at 2:28 pm #

    Well I didn’t go to graduate school (yet) but I am a relatively recent grad with about 3 1/2 years under my belt in “the real world.” It really can be quite depressing how much money you owe each month in student loan payments, especially if you financed a lot of your tuition. With that being said I think it’s important to factor in your student loan payment first and foremost before making any housing plans.
    DC @ Young Adult Money recently posted…The Importance of InternshipsMy Profile

    • Syed April 8, 2014 at 5:31 pm #

      Yeah payments can definitely high, and they’re going higher. Hopefully some alternative education opportunities will pop up that will force colleges to lower tuition. Thanks for the comment!
      Syed recently posted…It Might be Time to Cut the CordMy Profile

  8. David April 9, 2014 at 4:12 pm #

    Only if you have a job right after graduation is it worth throwing a full-fledged celebration. But, I do understand otherwise.
    David recently posted…Is Global Warming truly happening?My Profile

    • Syed April 11, 2014 at 7:03 am #

      Yeah and hopefully that celebration doesn’t include consistently purchasing excess consumer goods.
      Syed recently posted…A Twist on the HSAMy Profile

  9. John September 12, 2014 at 12:03 pm #

    After graduation we are facing with real life and feel the hardness of life. Before that it is so hard to feel the real life and real world.A professional degree isn’t a final solution.
    John recently posted…What are cilia?My Profile

  10. Ian Zafra December 16, 2014 at 6:24 pm #

    Graduating from college is a whole new experience for everyone, it is a sad and happy feeling because school is done, but the memories of being a student is done. After graduation, it will always be the greatest battle and this is facing the real world.

Leave a Reply

CommentLuv badge