Education

Planning ahead: Key financial considerations for graduates entering the workforce

Developing good financial habits early on can help grads get a greater sense of control over their financial situation

The combined housing and living crisis has heightened the importance of understanding how to manage money as efficiently as possible. Phorograph: iStock

Colin Gleeson
Tue Jun 20 2023 - 01:10

For many, leaving college and entering the workforce marks the beginning of proper adult life, and with it the challenge of navigating previously far-off concerns like housing and pension plans.

The twin crises of housing and the cost of living have combined to make balancing the books more difficult yet more important than ever.

Recent figures from property website Daft.ie showed rents at the end of 2022 were almost 12 per cent higher than a year earlier with the average rent standing at €1,750 compared with less than €1,400 in the first quarter of 2020 and a low of €765 per month in late 2011.

The upward trend in market rents around the country is driven by extraordinary shortages in the availability of accommodation with just 959 homes available to rent across the State on May 1st.

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Meanwhile, headline inflation in the Irish economy fell to 5.4 per cent in May on the back of falling energy prices, according to the latest harmonised index of consumer prices.

This compared to 6.3 per cent in April and an annual increase of 7 per cent in the euro zone in the same period. However, core or underlying inflation, a price gauge that excludes volatile items like food and energy, rose to 5.7 per cent, keeping pressure on households.

Food prices were estimated to have increased by 0.4 per cent in the past month, and to have risen by 12.5 per cent in the last 12 months. The bottom line is that most of us now must now keep a much closer eye on our finances than was previously the case.

Frank Farrelly, chief executive of Sigmar Recruitment, says all this means graduates should have the courage to play hardball with potential employers when sitting down to negotiate salaries and conditions.

“Housing is too expensive and is not available,” he says. “We are starting to see many graduates seeking a year abroad due to cost of living here and lack of suitable accommodation. The numbers heading off are increasing month on month.

“Don’t be afraid to negotiate your salary, but benchmark yourself to the average in the market not to the top of the market or you will price yourself out.

“Initial salary is important but remember in 12 months the experience gained will increase your market value significantly.”

Michael Laffey of the Money Advice and Budgeting Service (Mabs) says a new job could also involve added costs like a new wardrobe. “They may need a whole new set of clothes if there is a dress code at work,” he says.

“There are credit unions out there if you need to borrow a small amount to cover these costs.

“When you come out of college, you also need to consider whether you will have to move accommodation for work; will you be renting; will you have transport costs? There are Taxsaver tickets for transport that should be looked at to keep costs down.”

DCU careers consultant Jennifer Kwan encourages graduates to research what it costs to live in their chosen location and to include the cost of moving out of home. “You will also need to research realistic salary expectations for graduate jobs,” she says.

“When assessing job offers it is important to understand what other benefits come with the salary, such as health insurance, pension or share contributions.

“It’s also important to look at what costs might be associated with your place of work, such as commuting costs, subsidised canteen versus restaurants. These should be factored into your budget and salary expectations.

“Once you have joined the company the HR teams may organise guest talks or workshops on financial well-being, for example, pensions, mortgages, loans, finances, savings, and employee benefits, such as the bike-to-work scheme and commuter travel passes.”

Starting point

Laffey says the starting point for any graduate is to put together a budget, which in simple language is to make a log of your incomings and your outgoings. As a general principle, he advocates for what he calls a “50-30-20 strategy” in terms of whatever your income is.

“That’s 50 per cent on essentials like rent, food, car payments, transport costs; 20 per cent if at all possible on savings; and 30 per cent towards non-essentials like activities, eating out, travelling, clothes and so on,” he says.

University of Limerick careers’ adviser Brendan Lally says graduates should also avail of the services of a financial adviser “sooner rather than later” after starting their first job.

“They can help navigate complex financial matters, develop a comprehensive financial plan, and make informed decisions about investing, retirement planning, or debt management,” he says.

“Financial wellness forms part of the overall supports available to employees from many large organisations. I would strongly advise seeking it privately yourself if your employer does not already offer financial advisory support.

“Check if the financial adviser is regulated by the Central Bank’s firm search page on their website. Financial advice can be extremely valuable when starting your first graduate job, ensuring that you allocate funds for essential expenses, savings, and investments.

“If you have student loans or other debts, a financial advisor can help you understand your repayment options and develop a strategy to manage your debt efficiently.”

Indeed, Laffey says many graduates entering the workforce will have built up an amount of student debt during their college years. “If that’s the case, you need to put a repayment plan in place,” he says.

“You should always engage with whoever is the provider of the debt. Tell them what is happening if you haven’t got a job yet and ask them to put a temporary stall on payments until your circumstances change. If you have a job, look at what you are being paid and what sort of repayments you can afford to make on the basis of that, and communicate that to your provider.”

He points out that graduates ought to be aware of the importance of credit scores. “When people are young and in college, they might sometimes allow debt to run up on a credit card,” he says.

“But when you need to borrow for a car or whatever later on, it’s important your credit score is good. If you get into arrears that will impact on your ability to reach certain milestones in your life like a mortgage.”

Establishing good financial habits early on sets the stage for a secure financial future, according to Lally, who argues that by prioritising financial wellness from the start, you can create a solid foundation that will benefit you throughout your career.

“Financial stress can be a significant burden, impacting your mental and physical wellbeing,” he says. “By focusing on financial wellness early in your career, you can minimise financial stress and enjoy greater peace of mind. Financial stability early in your career also offers you greater flexibility in making career choices. You can explore different opportunities, pursue further education, or even start your own business without being solely driven by immediate financial needs.”

On that note, Laffey says the “key thing” is to set goals in terms of finance when you graduate. “It may seem strange when you are so young, but you need to think about things like pensions and retirement from an early stage,” he argues.

“The earlier those schemes are started, even if it is only a small contribution, the better. Will your employer make a contribution towards a pension? They are not obligated to at the moment but if they don’t they need to provide you with information on a personal retirement savings account, and they have to facilitate you starting to make payments into that.

“Another one to think about is health insurance. Years ago, it didn’t matter when you joined, you paid the same premium as people who were older. That has changed now and the advice is to start it earlier as there are long-term financial incentives to do so.”

Laffey says the move towards a more cashless society and the “tapping culture” is exacerbating financial problems for people.

“The tapping culture in this much more cashless society is one of the biggest challenges,” he says. “People tap, tap, tap, and no message comes up to tell you how much money you have left and what your upcoming bills are.

“There are lots of tools to help you with that. Even on the fintech side, and even with An Post, you can have an account and you can set up these wallets which you can put money into but it isn’t readily available to you like it would be in your normal account.

“So, each month when you get paid, you can siphon off a certain amount towards your rent, mortgage or savings into these wallets so it is not in the account that you are using to tap in your day-to-day life.”

Laffey also points out that the Mabs website has budgeting tools also, as well as a number of different support options.

“Don’t be shy in terms of looking for help and support when you are planning your finances,” he says. “We have no commercial agenda. It is a free service and there is no eligibility criteria.”

Key considerations panel

  • Make a budget
  • Argue your corner on salary and benefits
  • Engage with lenders on debt
  • Remember hidden costs like clothes for work
  • Look for support
Colin Gleeson

Colin Gleeson

Colin Gleeson is an Irish Times reporter

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