4 financial steps every new graduate should take

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Congrats, new graduate, on earning your college degree!

You’ve certainly earned the right to celebrate your accomplishments and take loads of cap-and-gown photos with your friends and family.

But there’s something else you need to do now as well: Start thinking about your financial future.

You’re lucky to graduate at a time when the job market is relatively favorable.

Making some smart decisions about what you do with those first few paychecks can help you build a strong financial foundation that will afford you flexibility and independence as you move through adulthood.

Take these steps to get started:

1. Make retirement savings a priority.

You’re a new graduate just starting your career now, so it may feel strange to start planning for the end of it, but money you can stash away for retirement now is the most valuable.

Your long time horizon means that the dollars you save now will be worth far more at retirement, thanks to compound interest. Aim to save at least enough through your work retirement account to get any employer match, since that’s essentially free money.

Next, you’ll want to start a Roth IRA. It is funded with after-tax dollars, but will grow tax-free and you won’t pay any money on withdrawals. These are great accounts for young workers, since you’re likely in a lower tax bracket now than you will be in retirement. You can put up to $5,500 into a Roth IRA this year, as long as you’re earning less than $117,000.

2. Have a plan for your student loans.

Last year, the average graduate with education debt finished school owing nearly $30,000 in student loans. Regardless of your balance, it’s important to prioritize your student loan payments early on, even if you’re still in the grace period (typically six months after graduation) before payments come due.

If it looks like you’ll have trouble making payment based on your income, see if you’re eligible for federal student loan repayment programs, which may tie the amount you have to pay to your income. Unless you’re eligible for loan forgiveness because you work in the public sector, however, stick with the standard plan if you can afford it, because it will cost you the least in interest over the life of the loan. If you are making standard payments, prioritize saving for retirement over paying your loans off early, since your long-term return on those investments is likely higher than your current interest rate, and you can deduct the interest on your taxes.

“Unless you’re paying more than 7 percent on your student loan, I’d resist the temptation to pay them off, and instead just save and invest that extra money,” says David John Marotta, president of Marotta Wealth Management in Charlottesville, Va.

3. Consider your health insurance options.

Under the Affordable Care Act, you must have health insurance or pay a penalty, but you’ll want a policy to prevent an illness or injury from jeopardizing your financial future. If you’re under age 26, you can stay on a parent’s health insurance plan, although you’ll need to see how the cost of that plan compares to the options provided by your employer. (If you’re not eligible for health insurance at work, or you’re a freelancer, you can buy insurance directly via the Obamacare exchanges).

If you don’t have any chronic illnesses and rarely visit the doctor, the most affordable option is likely a high-deductible health plan, which has low premiums and will cover preventative-care basics such as a check-ups and birth control. You’ll have to pay out of pocket for the costs of additional care up to your deductible amount. Prepare for those costs by setting tax-free money aside in a Health Savings Account.

4. Build an emergency fund.

Even on a low starting salary, you should aim to set aside some money regularly for unplanned expenses and emergencies. Try to set aside about 10 percent of your income until you have three to six months’ worth of expenses in this rainy day fund. That way you don’t have to dip into your retirement accounts or run up high-interest credit card debt if your car breaks down or you find yourself temporarily unemployed. Set up automatic transfers from your checking account into a designated savings account (or if your employer allows it, direct deposit part of your paycheck into savings) from the start, so that you get used to living on less than you earn right away.

The founder of Sam Adams explains the management strategy that helps his company eliminate 30% of job candidates

By Richard Feloni
jim koch
In the nascent days of the Boston Beer Company, its cofounder Jim Koch would personally recruit vendors for his Samuel Adams Boston Lager.

He’d return to these bars to train staff members on a Sam Adams sales pitch for drinkers who stuck to established brands like Budweiser. (Bars were willing to let him do this because his beer had higher profit margins.)

On one of these trips in 1986, at a Washington, D.C. bar called Rumors, Koch approached an employee named Colleen Keegan Williams because he was impressed by her level of engagement during the training, Koch wrote in his book “Quench Your Own Thirst.”

He learned that she had graduated from George Washington University with a finance degree and was working at the bar as she looked for a place to start her career. Koch then asked her if she ever considered selling beer, an idea she had never even thought of, but as a dedicated beer fan, found ideal. She joined the Boston Beer Company and became a successful salesperson.

It’s one of the key moments, Koch wrote, that inspired him to incorporate “ride-alongs” as part of the job interview process at Boston Beer Co., in which he or one of his managers could observe a candidate’s behavior in the field, such as a bar or liquor store.

“This process weeds out about 30% of the prospective hires who passed all the traditional interview tests,” Koch wrote. “People think that selling beer sounds cool, but then they encounter the blood and guts of the business. They see the greasy back-ends of the bars, not the shiny front.”

When Boston Beer Co. hires a salesperson, they want someone who not only understands the grittier side of the beer industry, but also embraces it, like Williams did back in ’86.

In addition to test-runs, Boston Beer Co. has been using profile tests since the 1990s as part of the interview process. They measure traits like a candidate’s “need to be proactive and take initiative, their need for order and structure, their need for social interaction, and their tendency to perform tasks patiently,” Koch wrote.

“The profile test helps us determine what activities people enjoy doing, and hence whether they’re likely to love working in their job with us.”

For example, he once interviewed an accountant candidate named Hank whose profile test suggested someone who was an independent and creative thinker, a decidedly atypical personality for an accountant. Koch had a conversation with Hank and got him to admit he didn’t actually enjoy accounting, but would love being a salesperson. Koch hired him for that position and Hank became an exceptional employee.

Both techniques stem from Koch’s philosophy that all hires should “raise the average” of the team they will be joining, and that as much time and care as necessary should be used to find these candidates. And ultimately, Koch said, after using the interview process to form a judgment of candidates, you will know instinctively if they are worth hiring.

“It’s easy to visualize in your mind the average person in your sales force or on your brewery floor or even in senior management and it’s easy for your intuition to evaluate whether a candidate is better than the average person,” Koch wrote. “Your gut will tell you.”
In the nascent days of the Boston Beer Company, its cofounder Jim Koch would personally recruit vendors for his Samuel Adams Boston Lager.

He’d return to these bars to train staff members on a Sam Adams sales pitch for drinkers who stuck to established brands like Budweiser. (Bars were willing to let him do this because his beer had higher profit margins.)

On one of these trips in 1986, at a Washington, D.C. bar called Rumors, Koch approached an employee named Colleen Keegan Williams because he was impressed by her level of engagement during the training, Koch wrote in his book “Quench Your Own Thirst.”

He learned that she had graduated from George Washington University with a finance degree and was working at the bar as she looked for a place to start her career. Koch then asked her if she ever considered selling beer, an idea she had never even thought of, but as a dedicated beer fan, found ideal. She joined the Boston Beer Company and became a successful salesperson.

It’s one of the key moments, Koch wrote, that inspired him to incorporate “ride-alongs” as part of the job interview process at Boston Beer Co., in which he or one of his managers could observe a candidate’s behavior in the field, such as a bar or liquor store.

“This process weeds out about 30% of the prospective hires who passed all the traditional interview tests,” Koch wrote. “People think that selling beer sounds cool, but then they encounter the blood and guts of the business. They see the greasy back-ends of the bars, not the shiny front.”

When Boston Beer Co. hires a salesperson, they want someone who not only understands the grittier side of the beer industry, but also embraces it, like Williams did back in ’86.

In addition to test-runs, Boston Beer Co. has been using profile tests since the 1990s as part of the interview process. They measure traits like a candidate’s “need to be proactive and take initiative, their need for order and structure, their need for social interaction, and their tendency to perform tasks patiently,” Koch wrote.

“The profile test helps us determine what activities people enjoy doing, and hence whether they’re likely to love working in their job with us.”

For example, he once interviewed an accountant candidate named Hank whose profile test suggested someone who was an independent and creative thinker, a decidedly atypical personality for an accountant. Koch had a conversation with Hank and got him to admit he didn’t actually enjoy accounting, but would love being a salesperson. Koch hired him for that position and Hank became an exceptional employee.

Both techniques stem from Koch’s philosophy that all hires should “raise the average” of the team they will be joining, and that as much time and care as necessary should be used to find these candidates. And ultimately, Koch said, after using the interview process to form a judgment of candidates, you will know instinctively if they are worth hiring.

“It’s easy to visualize in your mind the average person in your sales force or on your brewery floor or even in senior management and it’s easy for your intuition to evaluate whether a candidate is better than the average person,” Koch wrote. “Your gut will tell you.”

There’s a new driver of the global economy, and it changes how we should look at the world

Elena Holodny
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Economists and analysts like to fixate on the industrial sector, and that makes sense.

Data coming from industrial tends to be a bit more volatile, so historically it’s been pretty helpful in explaining the short-term swings in the economy.

But the less analyzed services sector is playing an increasingly larger role in the overall output and employment figures in the global and US economies.

And consequently, it may now be a better gauge of what’s going on in the world.

Services employment has surged to 46% of the global total in 2016, up from 34% in 1991. Over the past 25 years, about 75% of the 1 billion new jobs created in the world have been in services, according to figures cited by a Macquarie team led by David Doyle in a recent note to clients.

The same thing is happening with output data, as the share of GDP attributed to services has increased over the past four decades in both developed markets and emerging markets.

“Services have risen dramatically in importance and are increasingly dominant in shaping the outlook for global growth,” the Macquarie team wrote.

The note elaborated:

This was evident over the past two years as manufacturing PMIs showed weakness across major economies, leading many to conclude that a global recession was on the horizon. While this may have been the case in previous decades, in the current period the high services share in developed economies has made such an outcome far less likely. Services activity has held firm for the most part speaking to the underlying resilience of the global economy.

For what it’s worth, Deutsche Bank’s Torsten Sløk made a somewhat similar argument back in October 2015 via two pie charts, shown below.

One chart shows the share of the US employment in services versus manufacturing, and the second shows the share of earnings in the S&P that 500 comes from services versus manufacturing.

Notably, although manufacturing makes up the bulk of the S&P 500, it’s responsible for just a sliver of the employed workforce. Therefore, Sløk argued at the time, we were seeing a profit recession, but not an economic recession.

The Macquarie team also argued that our structural transition to a more services-based economy comes with key changes. For example, they argue we’ll see less economic volatility — given that the industrial sector is more volatile, if it makes up a smaller share, then overall volatility drops — and that trade increasingly will revolve around services.

However, most notably, they also argue that this will lead to continued lower productivity growth in developed markets. They note that the level of productivity in the services sector is much lower than in the goods-manufacturing sector, and that the growth rate of productivity in the services sector has historically been way less than the growth rate in manufacturing.

Still, that may not be a bad thing. After all, lower productivity combined with more stability theoretically just means that we might be looking at a more “slow and steady” kind of world.

Or as the Macquarie team put it, “the rising importance of services has played a key role in our team’s view that the current expansion should continue to be characterized by structurally lower growth rates, but also by incredible persistency and resiliency.”

This is the jobs report we’ve been waiting for

Created by Myles Udland

The April jobs report was a disappointment.

The US economy added 160,000 jobs in April, the fewest since October 2015 and well below expectations for job gains of 200,000.

And while any and all disappointments relative to the headline number get those who are bearish on the US economy all excited, this is really the kind of jobs report we’ve been waiting to see.

As the US economy pulls closer to full employment, economists have long argued that the pace of payrolls gains will simply have to slow down.

In a speech last year, San Francisco Fed president John Williams said that once the US economy is “operating at full strength,” only 60,000 to 100,000 new jobs are likely to be created each month.

And here we are.

Williams also anticipated Friday’s chorus from the bears, adding: “Commentators may call this [job growth] disappointing, and it was when we were climbing out of the hole the recession left. But in a healthy economy, it’s what strong, steady growth looks like.”

After Friday’s report, Neil Dutta at Renaissance Macro called this the best jobs report since January, writing: “Employment reports should be taken holistically. That means combining the growth in jobs, the length of the workweek, and hourly earnings. In this regard, the April jobs number was the strongest since January. The economy is at full employment. At full employment, the growth in payrolls slow and wages rise. We saw both in April.”

In April, hourly earnings rose 0.3% over those of March and 2.5% compared with those of April 2015.

This annual rate of wage gains matches the fastest we have seen since the crisis — wages rose 2.5% year-on-year in both January and February.

Of course, also hitting our inbox shortly after the jobs report were calls for another round of quantitative easing from the Federal Reserve before its benchmark interest rate — currently pegged between 0.25% and 0.50% — hits 1%.

And according to data from Bloomberg, there are no Fed meetings with as much as a 50% chance of an interest-rate hike out to February 2017. So the markets are taking Friday’s report as another sign the Fed isn’t going anywhere.

And maybe it isn’t. But a disappointing headline out of Friday’s jobs report is not an indictment of the US economy.

Because if the US economy continues to grow slowly but surely and the labor market remains intact, Friday’s report of modest job gains and solid wage growth is something we should all get used to.

The Best Way to Track Your Company’s Performance


JOE WORTH
CONTRIBUTOR

This story first appeared in the May issue of Entrepreneur. To receive the magazine, click here to subscribe.
You need to pick your key performance indicators, or KPIs. They’re data used to chart a business on its way to success and profits, and are often used when revenue-starved startups need to identify ways to measure progress in the absence of cash flow. But there’s a big risk: If you choose the wrong KPIs, you may drive your company to financial ruin.

So, how to pick? Identify your business goals and the activities that lead directly to achieving them. Keep in mind that more often than not, bad KPIs are the result of upper management and the board deciding what to track. In my experience, you’re better off listening to line managers and frontline employees; they’ll give you more granular KPIs, to truly show how your company is doing. (See chart below for some starter ideas.)

Once you have your KPIs picked out, lock in the time period for each one to be measured. The goal is to monitor change as close to real time as possible (I suggest weekly) and hold people accountable for improvements.

Americans are saving more — and it’s killing the economy

 

Americans are saving more money, and it’s becoming a problem for economic growth.

In a big note out Wednesday, Peter Hooper and the economics team at Deutsche Bank look at the recent rise in the savings rate and what it means for the future of US economic growth.

In short, Americans are taking potential growth and sticking it in their pocket.

Here’s Deutsche Bank (emphasis mine):

Growth has slowed meaningfully over the last two quarters, and the deceleration in consumer spending, which fell from a 3% annualized growth rate in Q3 2015 to 1.9% in Q1 2016, has been an important driver of this slowdown. Our analysis suggests that while the saving rate may stabilize and even fall slightly, a sharp decline that would significantly boost consumer spending is unlikely. Therefore, while growth is likely to pickup in the quarters ahead, it should also remain modest.

Now at 5.4%, the savings rate is still low(ish) on a historical basis. But the recent uptick has been confounding to economists given not only the decline in oil prices but the strength of the labor market.

The thinking here being that if you’re saving money on gas, you might spend it, and that if you go from having no income to some income, you’ll spend that, too.

The savings rate steadily marching higher.

This isn’t the first time we’ve written about how the savings rate’s increase is problematic for an economy driven by consumer spending. See here and here.

Consumer spending accounts for about two-thirds of gross-domestic-product growth. This ranges from people buying stuff like clothes, cars, and televisions, to food, to services, to gym memberships. And the math on this is simple: More saving equals less spending, which nets less economic growth.

But the puzzlement from the economics community on why savings are increasing is always an interesting line of thinking to explore.

In its report, Deutsche Bank includes the following chart, which shows a clear preference for Americans to save rather than spend money since the financial crisis.

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Intuitively this makes sense.

Assets of all types declined in value during the financial crisis. Most notably among these assets were home prices, which are a major driver of consumption. And so it’s easy to see why Americans went from wanting to save and spend money in equal proportion to essentially saving $2 for every $1 spent.

A note from Mike Ryan of UBS published back in March neatly captured the standard line of economic thinking on the savings rate “puzzle.” Ryan writes (emphasis mine):

One of the curious anomalies of the current stage of this economic expansion is the more measured role being played by the consumer. Despite the seemingly supportive combination of improving labor market conditions, rising wages and salaries, and lower energy costs, consumer spending has not expanded at the pace many would have expected at this point. Instead, consumers appear content to simply continue socking away the windfalls from both wage gains and energy price declines, as evidenced by the rise in the domestic savings rate.

Now, the thinking here is sound: If someone has less money and then the next day has more money, the person might want to spend that extra money.

Additionally, with the labor market strong it seems that conditions are ripe for more Americans to expand their spending and, ideally, even use a little bit of a leverage to stretch that power further.

But thinking that American consumers would prefer to save rather than spend additional income just a few years after the worst recession since the Great Depression does not at all seem crazy to me. To make up for a loss in net worth, you’d think that “save more” is about the easiest fix one could make.

Of course, economists are not entirely blind to this dynamic of postcrisis uncertainty driving consumers to save rather than spend.

Deutsche Bank writes: “One possibility [for explaining the higher savings rate] is that there may be an ongoing shift toward a desire for more savings, irrespective of the level of wealth, interest rates, and other factors … This shift toward more savings may arise because the macroeconomic environment is viewed as inherently riskier following the financial crisis.”

But struggling to understand why Americans might be more inclined to save money after having seen their net worth plummet almost overnight is the kind of argument only an economist could really love.

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