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Welcome back to Invest in You: Ready. Set. Grow’s supplemental Money 101 guide to financial wellness as we navigate the challenging times.
As young Americans enter adulthood these days, they’re facing a world much different than their parents. They’re dealing with inflation for the first time, and talk about a recession and stagflation, which is the threat of both stagnant economic growth and persistent inflation.
Consumer prices rose 8.6% in May, the highest since 1981. In response to rising inflation, the Federal Reserve has hiked interest rates, including last Wednesday’s three-quarter percentage point increase – the most aggressive since 1994. Rates are expected to climb higher as the Fed continues to hike throughout the year.
At the same time, there are concerns about a recession. Some 68% of those surveyed in a recent CNBC CFO Council survey believe a recession will occur during the first half of 2023.
Yet, right now, experts are still calling the job market for graduates one of the best they’ve seen in generations. That could change if the economy deteriorates.
Today we’ll look at what the class of 2022 needs to know, from crafting a budget to building wealth, all against the backdrop of today’s economic conditions. Thank you for already undertaking your journey to financial wellness. We hope these supplementary lessons help pave the way forward.
Sharon Epperson
CNBC Senior Personal Finance Correspondent
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WHAT THE CLASS OF 2022 NEEDS TO KNOW |
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A budget is always important, but perhaps is even more so during a time of rising prices. It essentially keeps track of what money is coming in, such as your paycheck, and what is going out to pay bills. When setting your budget, treat your savings as a bill, said certified financial planner Tom Henske, managing partner at New-York based The Affluent Insurance Advisor. “If you start with things like nights out and eating out and social things you will save just what is left over,” he said. “Don’t do that.” “Start with what you save and put everything else around it.” |
Building credit is the foundation of your financial life and the sooner you get started, the better.
Your credit impacts everything from your ability to get a loan or rent an apartment to the amount of interest you’ll pay on any loans. That’s especially important now that interest rates are rising. |
“Certain money is not always good money. It could be just being at the wrong place at the wrong time. I mean, if you have your priorities in check then for the most part it’s easy.”
— LeBron James |
You can start by opening a secured credit card. It works just like a regular credit card except you make a deposit, which becomes your credit limit. Another option is to become an authorized user on a parent’s credit card. There are also alternatives that allow you to factor additional bills into your credit score and credit report, like Experian Boost which counts phone, utility and streaming service payments. Also, eCredable Lift reports utility and phone payments to TransUnion, and Perch allows you to boost your score with recurring expenses such as subscription services and rent. Always remember to pay bills on time and to not carry a lot of debt. |
College graduates are still facing a positive job market right now.
Employers plan to hire 26.6% more new graduates from the Class of 2022 than they did from the Class of 2021, according to the National Association of Colleges and Employers.
Career experts advise looking for the right fit, which means factoring in benefits in addition to salary, asking questions during the interview process, networking with family, friends and professors, and negotiating any offer you receive. |
While the market has been volatile, young investors need to think long-term. History shows that, over time, the stock market goes higher resulting in significant growth for investors.
Just getting started? What you shouldn’t try to do is time the market or buy a hot stock. First-time investors should focus on index funds that grow slowly over time, said certified financial planner Cathy Curtis, founder and CEO of Curtis Financial Planning in Oakland, California.
Where should you invest? Open a 401(k) if your employer offers one and contribute at least up to what the company matches, Curtis said.
With a 401(k) or workplace retirement plan, you’re taking advantage of what’s called "dollar-cost averaging." You're investing your money in equal portions at regular intervals no matter how the market is doing. This means that when the market is going down you’re buying more shares with the same amount of money and when the market recovers you have more shares going up. “So you’re also not risking a lump sum all at once,” said certified financial planner Ivory Johnson of Delancey Wealth Management in Washington, D.C.
If an employer-sponsored plan isn’t available – or you also want to save on your own – open a Roth individual retirement account. The money will go into this account after-taxes are taken out. That money grows tax-free and you can withdraw your earnings on it tax-free after you turn 59 ½. An added benefit: your contributions to a Roth IRA are available to you to take out at any time for free, no penalties or fees, so it can also serve as a kind of emergency savings – put at least some of that money in cash or cash-like investments.
Ideally, though, you should put money away for an emergency, separate from your retirement savings, in a high-yield savings or money market account. |
Words like inflation, stagflation and rising interest rates may seem scary. Yet it’s important to keep in mind that building a solid financial foundation can get you off on the right foot financially.
Not only can it help you accumulate wealth and plan for retirement (even though it seems far off), but it can also help you navigate economic uncertainty. |
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