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It’s been just a few years since Stephen Holmes was among the Yellow Jackets of Georgia Tech. But, so far, the 2002 grad appears to be off to a solid financial start.
Single and working as a contract analyst for Southern Co., a national energy company in Atlanta, he brings home $62,000 a year. Indeed, he’s already well ahead of the national median household income of $43,143 for college graduates. What’s more, the business finance major recently moved into his second home.
In fact, one of the only things wrong with Holmes’ financial picture is that, at 26, he thinks it’s OK to put off saving. He sums it up succinctly: “People my age–we want what we want, when we want it. Saving for the future is important, but there are still plenty of things I need.”
While instant gratification is tempting at any age, Holmes’ generation seems to be redefining “wants” and “needs.” Raised in fast-paced consumerism, items like flat-panel TVs and “real” furniture are no longer considered options, but rather must-haves.
Holmes’ financial situation, while far from perfect, is better than many. He contributes 8% of his salary to his 401(k) to meet the matching contribution by his employer, and he has more than $20,000 in an IRA and bank CDs.
But the glossy outlook turns a bit dull when you consider he has between $6,000 and $7,000 in credit card debt and a fluctuating commitment to saving. He also admits to giving only a cursory look at bank statements and isn’t sure of earned interest rates. Because he doesn’t plan to be in his home for long, and to keep payments manageable, he opted for an interest-only, adjustable rate mortgage.
And a budget? “I refuse,” chuckles Holmes. “I’ve tried, but it’s so hard to do.” So far, he thinks he’s done a fair job of money management. But he wants to be more consistent and more hands-on in future investment strategies.
Holmes is picking an ideal time to re-evaluate his fiscal thinking, says Bobbie Munroe, a certified financial planner with Fraser Financial in Atlanta. “If there’s anybody who should be debt-free, it’s him,” she says.
Currently, growing his emergency savings should take precedence over investing. For a single-income household, Munroe recommends at least six months of salary in an accessible account.
Ditch the dreaded “budget” word, she says. Think of it as a “strategy.” Instead of a restrictive money plan, ferret out ways to save money each week. Try eating in restaurants three times a week instead of five, or entertaining friends at home. For instance, by skipping one evening out and investing $50 each month (the estimated outing cost), with a 5% annual return, Holmes would have nearly $75,000 by retirement.
To help get things started, Munroe recommends bringing in a support system. “It’s not just the wealthy who benefit from financial planning,” she says. “Have someone knowledgeable help give some direction.” Advisers can also bring accountability. Define goals, and then meet again to review results.
A few tips for traveling the road to wealth
- Prepare for