Good day. About 4 million students graduate from college in the US every year, vying to capture that bright future they've been told awaits them. But, it doesn't always start out so glamarous. Can you guess what the average starting salary for a graduate with a bachelor's degree is? a. $47,600 b. $55,260, c. $62,300. Follow the wave 🌊 below for the answer. Here are the topics for today: - Today's Top 5 Financial Mistakes
- Get Ready to Hear About "Private Credit"
- 3 Things Every Graduate Should Know About Money
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FINANCIAL PLANNING Today's Top 5 Financial Mistakes | | | | Whether from over-action and eagerness or inaction and complacency, it's deceptively easy to make mistakes when it comes to our finances. It's certainly okay to mess up, but it's also critically important to catch ourselves before those mistakes compound. Some paramount pitfalls can quickly exceed the damage of others if not caught early enough, and we're laying them out as our top financial blunders to avoid right now. In no particular order…here's what to avoid - Not having an emergency fund: Personal savings rates are nearing another low again, and it's commonly reported that only about 5% of Americans have more than $10,000 saved. No matter your financial situation, having a buffer against the inevitable unknown is one of the smartest things you can do and it'll allow you to build a foundation for your other financial goals
- Waiting until next year: Compound interest is the 8th wonder of the world, and investors who started sooner rather than later can attest to this. If you invested $6,000 per year at an average return of 8% annually for 40 years, you'd end up with a total of $1,565,201. But if you waited just one year and cut your timeline to 39 years? Your total would be $1,443,704 — a difference of over $120,000.
- Not getting that match: A whopping 98% of employers that offer 401(k) plans are also offering a full or partial match, and not taking advantage of that is electing to miss out on free money. For example, if your employer offers a 50% match on your contributions of up to 6% of your salary, and you make $50K, not only are you missing out on $1,500 of free money that year, but $1,500 per year and all of the capital gains and compounding that would come with that.
- Paying down the wrong debt: If you've got credit cards, a car loan, a mortgage, and student loans all on the debt docket, it might be tough to decide which to pay first, but there's an easy way to decide. Don't make the mistake of paying your lower-interest debts down first — like a mortgage. Instead, focus on those with more costly interest rates like credit cards and auto loans.
- Allowing lifestyle creep: If you've ever received a raise, you're probably familiar with that urge to immediately use your newfound financial superpower, but doing so may rob your future self. In order to avoid this, you'll need a plan to manage that new income, one that prioritizes saving, investing, and paying down debt before any lifestyle inflation creeps in.
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INVESTING Get Ready to Hear About "Private Credit" | | | | The groundwork of personal finance is similar to that of a treadmill — if you don't keep up, it will keep moving without you. This manifests itself by way of a constantly evolving and innovating environment, one where creativity reigns and complacency drains. All of that to say this — there's a new player in the room to keep a watchful eye on: private credit. Although that might sound like an obscure lending practice for business aristocrats, it's actually a growing investment category that may find its way into your portfolio. Let's start from the top - Defining PC: The best way to describe private credit may be to call it private equity's close relative, except instead of getting equity in return, lenders just want their money back + interest.
- Private credit's growth: Private credit assets under management have doubled since 2018 and almost tripled since 2015 — now topping $1.48T in value. Expectations are that the class will blossom even more, reaching $2.2T by 2027.
- Who is investing? You can't exactly invest in PC on your own in a traditional way, but the investing giants that loom in the background can. Pension funds are the largest holder of private credit assets at 17%, while private funds, private pensions, insurance firms, and sovereign wealth funds follow suit.
- That doesn't mean individuals can't invest though — it's just not as straightforward as investing in the markets. In fact, about 9% of those assets are held by individuals. There is a short list of companies out there that help facilitate this, and even some big-name investment banks like BlackRock and JPMorgan that will allow it with certain qualifications.
- What kind of returns? There's no obvious way to index the entire sector like there is with public markets, but for perspective, the Cliffwater Direct Lending Index (tracking $280B of private loans) was up about 6.3% in 2022 — a year when the S&P 500 fell by over 19%.
- Closing remarks: As this asset grouping continues to swell and gain momentum, you may want to be prepared to hear about it from an advisor in your next meeting. Many pensions and retirement funds are already dipping a toe into private credit as a means of diversifying, and it's worth understanding what's going into your portfolio.
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MONEY TIP 3 Things Every Graduate Should Know About Money | | | | In the U.S., the average student that graduates with a bachelor's degree will go on to make roughly $55,260, or up to $75,000 for computer science majors. Those with graduate degrees tend to earn more, coming in at $81,900 annually, while doctoral students' median income is $99,268. But no matter your salary, the truth is this — it's not about how much you make, but what you do with it that matters. Unfortunately, that's easier said than done, and many graduates will miss the mark with their money. We want you to avoid that at all costs. Top 3 things to know about money — graduates edition - Invest and save ASAP: In topic one, we denoted an example of just how powerful compound interest can be. But it's not just interest that compounds, it's your habits too. Starting habits of investing and saving as early as possible will be a life safer down the road when those become automatic, and the power of compounding interest on those habits will thank you too. Starting small might be defeating at first, but it adds up — even saving $25 per week equates to $1,300 by year's end.
- Upgrade your life, slowly: Once you graduate and secure your first full-time role, it can be easy to fall prey to lifestyle creep — a situation where just because you're making more, you're spending more too. This is a great way to rob yourself of your chances to get ahead by spending responsibly in your younger years.
- Be apprehensive of debt: Generation Z (the age cohort of current graduates) has been racking up debt faster than any other age cohort during these expensive times with an average balance of over $16,000 by the end of last year. If it isn't monitored closely, debt can easily snowball and wreck your finances for years to come. When it comes to debt, have a strategy, a plan, and a purpose for it, never taking on more than you can reasonably pay off or debt that doesn't benefit your net worth (like a home).
Take this related lesson and earn 🟡 Dibs: | | | |
🌊 BY THE WAY | - 💹 Answer: $55,260 is the average starting salary of recent graduates in the U.S., varying widely from one degree to another (Bank Rate)
- 👨🏻💻 One-third of Americans worked from home in 2022 (Axios)
- 📝 ICYMI. Don't check your 401(k) (Finny)
- 🔋 Ford gets $9.2B from the government to boost EV battery capacity (Electrek)
- 📊 Finny lesson of the day. Student loan repayments are due to resume soon — should you consolidate or not?
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| Advisory services are offered through Origin Financial, a Registered Investment Adviser registered with the U.S. Securities and Exchange Commission. The status of registration as an Investment Adviser does not imply a certain level of skill or training. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor, is it intended to be a projection of current or future performance or indication of future results. | | | | | | | |
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