I remember thinking when I was in college that life would be perfect if I could just earn $1,000 a week. Naturally, the average starting salaries back then were about half of that. I am pleased to report that this year’s 1.85 million students who will receive bachelor’s degrees and enter the workforce can expect to earn (on average) about $50,000 per year. A survey of 45,370 college grads from 2014 put their average starting salary at $48,127. This year’s college grads will be entering into a more desirable environment than in years past with higher pay and more full-time job openings. Budgeting and learning how to save may be the biggest determinants of their financial success after getting that first job.
Pay scales for new college graduates vary widely by discipline and major. Starting salary projections range from over $80,000 for petroleum engineering majors to under $33,000 for child development. I was recently at a pre-school graduation where each child was asked, “What do you want to be when you grow up?” Surprisingly, not one of them said “petroleum engineer.” Apparently, despite the good pay, petroleum engineer is not as glamorous as professional baseball player or mommy, the two most desirable careers among pre-schoolers.
Learn to budget before making any major financial decisions:
If you are just beginning your career, let me offer this piece of advice: do not buy a car, rent an apartment, or make any other big expenditure without budgeting first. New college grads are so excited to go from earning nothing to earning something that they frequently overestimate what they can afford, and end up having to move back in with their parents. Developing a budget ranks right up there with root canals and cleaning out the garage on most people’s lists of favorite activities. Yet, budgeting is the key to financial success.
Plenty of budgeting programs are available, including the widespread pencil and spiral bound notebook method. A friend of mine recently turned his financial life around and gave credit (and glowing reviews) to this program: YNAB (You Need A Budget). I have since adopted this same program in my own household.
Budget category #1:
Whatever method you use, budget category #1 should be “savings.” Save first; then figure out how much you have left to spend. The opposite approach does not work. Take my word for it. The minimum level of saving should be 10% of your income regardless of how much you earn. Also, don’t forget to budget for student loan repayment if you had to borrow your way to graduation day. The average graduate this year will have over $30,000 in student loans, and repayment typically begins six months after graduation.
You may be wondering after reading this whether four years of college is worth the time, effort, and expense. This topic was covered in last year’s blog post: Is College Worth The Cost? The bottom line is, yes, the investment in education is still likely to pay off. However, don’t be discouraged if you are one of the 68% of American adults who do not have a degree. Only 5% of job openings are geared toward new college grads, and the fastest growth in employment opportunities are for jobs that do not require a degree. Besides, Floyd Mayweather and Manny Pacquiao are both likely to make over $100 million for their fight this Saturday night, and I don’t think either of them has a college degree.