Vol. 6 - How to successfully launch as a New Grad
In this episode, we are answering a listener question who is confused about investing and paying off student loan debt after starting her first job. We cover:
How much to put into savings
Tuition Reimbursement
Investing to get the company match
Making sure savings are in high yield accounts
Retirement fund investment options
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TRANSCRIPT:
Jason Hamilton (02:12): All right. Hello. Welcome everybody to Nurse Your Wealth Podcast number six. We are back again. We had to take a little week off. We had some little babies that weren't feeling too well, so we had to take care of that for this week. I don't know what's going on. I feel like it's just all the little kids got sick on the same week. My nephew got sick, my good friend's kid was sick and then Naseema has a baby that wasn't doing too well so. But we are back this week and we have a really, really good question for you I think. So, welcome Naseema. How are you doing today?
Naseema McElroy (02:38): I'm doing great. My kids are on the mend, they're better. Actually, a hundred percent better.
Jason Hamilton (02:44): Good. That is great to hear. And so today, we're gonna jump into a question that was submitted by one of Naseema's followers, I guess you could say by email. And I think it's a really good question. And if you are a newer nurse that is just getting into your first job and dealing with things like managing student loans versus you know, looking at your 401k and maybe still in school, this is going to be for you. 'Cause this question aligns with all of that right there. So what we're going to do today is actually pull this up so that everybody can see, and I'm going to do what I'm supposed to normally do, which is get my disclosures as well. For those that don't know, I am a Certified Financial Planner. I have a lot of compliance that I have to stay within. So I have to let everybody know that what we talk about here should not be seen as financial advice, legal advice, tax advice.
Jason Hamilton (03:34): And you know, in all honesty, this should be looked at as entertainment, right? So, but I think this is a good situation that can be really helpful for people. And so I want you to know that, please don't hold me accountable for this if you don't agree or you know you think something's wrong, but we're gonna do our best to lay this out in a way that is very clear so that if you're a newer nurse it'll be helpful to you. So, let's jump over to the question here. I'm going to read this off. The email that was sent to Naseema said, Hey, I randomly landed on your site and is just receiving their 401k package in the mail from her first job as an RN. She's also just starting her BSN. You know, this is for nurses. So you probably know exactly what this is, but I'm guessing that's bachelor of science in nursing and adding to those student loans.
Jason Hamilton (04:16): So that tells me that she currently has student loans and she is looking at adding to continue her degree. 'Cause that's very important that we're going to talk about here. I have no idea how to even begin to know what it is I should choose when it comes to my 401k option. I am terrified about all these loans and there's so much talk about nurses doing different things, but I don't know where to start. I'm not sure if this is like a private person that I'm emailing or a huge corporation, but I figured I'd give it a shot because I'm lost. Feel free to email back anytime. Thanks, Kaitlin. So do you remember your first job as a nurse when you're getting out of school and dealing with some of this stuff?
Naseema McElroy (04:52): I definitely remember it and it was very overwhelming. It would be even more overwhelming if it was like my very first corporate job. But yeah, just coming into nursing and all of the things that you have to do as far as orientation and like nothing else. And so to get a package on top of that with all these options on how to invest in investing is something that you've never thought about is pretty intimidating. And I do remember that feeling.
Jason Hamilton (05:19): Yeah. Most people when it comes to their first job, at least most nurses I know a lot of times they're the first person that ever even have a 401k in their family sometimes. And I know that was like for us too, my parents were in the restaurant business. They own their own business. So it was like there's no 401ks really in restaurants, you know, it's kinda like you got to figure things out on your own. So let's start at the top with this thing. The first thing is that she is starting her BSN and adding to her student loans and she's worried about her 401k. In all honesty, I don't think 401k is going to be a priority for me or if I was advising this person if she's currently has student loans and is considering adding more to her student loans. I don't know if I would even be thinking about that to be honest with you. If you get a match. Okay. That's one thing, but there's a couple of things we don't know. One is how much in current student loans this person has. I have no idea. I mean, my guess is probably 30,000 bucks if they're still going for their BSN. I mean, is that even, is that in the range of what it possibly could be? And I couldn't imagine much more than that.
Naseema McElroy (06:21): It can be anywhere from lower teens to six figures. So it just depends on what kind of program they're in. Honestly.
Jason Hamilton (06:29): OK. From a structural standpoint, right. There is something that I think if you're still dealing with debt, right? Kinda changes a lot for me when it comes to thinking about your longterm future because student loan rates have gone up, you know, I don't know what they are taped. They're probably somewhere to 5 to 7%.
Naseema McElroy (06:44): Closer to seven.
Jason Hamilton (06:45): Seven. Okay. And then private loans are probably in the 10% plus range is my guess. That's the most recent thing I've seen. Is that? Okay. When you look at the longterm history of things like the stock market 401ks, this is really hard because people might look at 2019 and say, well, in 2019 the S and P 500 did like over 20% right there, like 27% so shouldn't I be investing in the market instead of paying down student loans at 7% or 10%. And 2019 was a great year, but 2018 you could have been down at the end of the year 10% or even more depending on how you're invested.
Jason Hamilton (07:24): So a reasonable return I think over the longterm for something like your 401k, you know, depending on your, how aggressively you're invested in somewhere between 7 to 10%, somewhere in that range. If you're going to get maybe seven to 10% there's no guarantees there versus looking off paying off loans that is a guaranteed 7% or is a guaranteed 10% return. I'm probably gonna recommend Kaitlin really starts thinking about first doing everything she can to not take on additional student loans. So she already has her loans that she already has. This kind of is what it is. I would love for Kaitlin to start by saying looking at her budget. Okay, starting with like, okay, how much is your salary? What are you going to be taking home from that salary and not including 401k and you really want to be smart and look at what you're going to be thinking about paying for taxes.
Jason Hamilton (08:11): Because this is a big thing Naseema shared with me, it was like nurses are getting through their first year and then getting kind of bigger pay the next bucket and then they owe a bunch of taxes and now they're getting the tax debt. So that's my number one thing is I'd want you to do some tax projections and now there's online calculators you can use. If you have somebody that's been filing your taxes, it might be worth paying them, you know, for an hour of their time. So to sit there and help you figure this out. But once you figure out what your take home pay is going to be and then how much your basic expenses are going to cost, I would want to know what the gap is between what you have left over and what you got to pay for school as you're completing your BSN. That's what I would want to know first. Thoughts on that?
Naseema McElroy (08:50): Yes. I want to reiterate what you said about paying off debt and that being an immediate return on your investment, and I don't think that people understand that, so I want to emphasize that that's guaranteed that you're going to get that rate of return. So instead of investing in the market and hoping to get a certain rate of return, you automatically know that whatever your percentage rate that you're paying on your student loans, that's exactly the rate of return that you're going to get by paying down your debt. And so I think that that's very important. The other thing is that, yeah, I want Kaitlin to focus on not accumulating more debt and she's going into a nursing job and 99% of the nurses' jobs I've seen will pay for tuition reimbursement. And so if that means maybe pausing for a semester and seeing if the next semester of her program can be covered by the employer, she should do that. But they're oftentimes employers have affiliations with programs where I know at Kaiser you can basically get your BSN for $100. So I would explore those options and then sure, you're going to talk about looking at ways to pay down your debt now that you are employed as far as like seeing if you can take advantage of public student loan forgiveness or anything like that. So we can talk about that later. But at this point, yeah, I 100% agree with everything.
Jason Hamilton (10:14): So going back to, let me just pull up Kaitlin's situation here. What I want to do first for you, Kaitlin, is reduce the chaos. Okay. You have a lot of things that you're looking at here. There's about four different things you're looking at. You're like, okay, I'm adding to student loans for my school. I'm thinking about paying down my debt. I have my 401k and considering like what I should be investing in from the start. So I want to break this down so this can be a lot more straightforward. So Kaitlin, before you do anything, if you don't have some sort of emergency fund put aside, I don't want you to pay anything extra on your loans. I want you to get your budget in place and pay the minimums on your loans currently until you get at least one month of expenses. Okay? So once you figure out what's your job, what your basic expenses are, your rent, you know.
Jason Hamilton (11:02): So let's say for example, that's $3,000 you know, that's pretty normal. Three to 4,000 bucks. I don't want you to do anything else until you save that one month of expenses. Because having that money aside, why? If you're going to school and working at the same time, you're going to deal with a lot of stress, a lot of balancing act with things. And if you have like a car breakdown or if you have anything going on and you don't have money to the side, the first thing you're probably going to do is go put that on a credit card. I want you to avoid that. Some gurus will say $1,000 I just don't think that's enough. I like one month of expenses to start and they say about 64% I've heard 72% but at least 60 something percent of people don't even have $1,000 put aside for emergency in this country.
Jason Hamilton (11:43): Like everybody's living paycheck to paycheck, right? So if I can get you off of that statistic as your first goal and get one month of expenses aside, you're now in a top 25 or top 30 percent of people in this nation when it comes to handling your finances. So that's going to give you a little bit of power and a little bit of foundation that you know you have some flexibility if things come up and then when it comes to your current student loans, there's a good chance these are subsidized, right? So the answer is going to change if you have subsidized loans versus un-subsidized loans. So for those that aren't familiar with that, subsidized loans, if Kaitlin goes back in school and she's in school, let's say at least half time, I believe it is, but if not full time, she will qualify for through the government essentially. If she has subsidized loans, they'll pay her interest on those loans while she's in school. So the loans will be there, but she won't accumulate interest. If for loans are un-subsidized then she's going to be accumulating interest. So depending on, you know, what that situation is, I'd probably go a couple of them directions, but I think we're on the same page here Naseema that ideally we want to limit the amount of additional debt that she's going to take on. Exploring things like reimbursement tuition, reimbursement programs through work. Go to your HR today and find out what sort of tuition reimbursement programs do you have and if you have to be there for three months or six months before you get that, then may e, it might be good to take a semester off, just work, get some things in order before you go back because why take on 5, 10 or $15,000 if you can just pause for a second, get your one month of expenses in place and start getting ready for going back to school and having your finances in order. Those are my initial thoughts. Anything you want to add on that?
Naseema McElroy (13:18): Nope, that's great.
Naseema McElroy (13:19): So, if you notice Kaitlin, how we haven't talked to anything much 401k yet. Right? So your step number one is to get at least one month of expenses in place. Okay. Once you get that in place, then you want to figure out how much additional debt you're going to have to take on and how much you can cash flow between your current income and what the school is going to cost. Ideally be zero. And this is not something you brought up so you didn't tell us that your workplace doesn't offer this. So as Naseema experienced, like you said, and over 90% are probably can have some sort of reimbursement. So your number two goal is to be to go to visit with HR, see how much you can get reimbursed and see can you cash flow the rest of your degree without taking on additional debt.
Jason Hamilton (14:01): That's what I would stay in step two. What are your thoughts on that? Okay. Let's say this is a perfect scenario. Okay. Let's say all her loans are subsidized loans, so she will not have to take on any interest between now and then and she can now get the majority of her education covered through work. So now we know she can cashflow the rest of her school without taking on any additional debt. Let's say it's a perfect scenario like that because sounds like that's a reasonable assumption. Maybe it's not perfect. That sounds reasonable. So if that's the case and her employer offers a match. So in your 401k, most employers are gonna offer some sort of match and maybe it's dollar for dollar up to 3% or 5% or maybe you put 5% and they put in two and a half percent whatever that is.
Jason Hamilton (14:48): Okay? If you have the perfect scenario and you have subsidized loans, you're not taking on any interest and you workplaces now going to cover that most of your future education and you can cover the difference. If those two things are in place, then I'm going to tell you get the match. Okay? Get that match there. And after you get that match, then I want you to take your one month of expenses up to three months of expenses with anything additional. So now, ideally you're not taking on additional debt. You have a one month expenses in place and you are getting the match network. Okay? So that's free money, you know what I mean? Ideally you want to get that match. If you can. After that, then I want you to get the three months as a minimum of your expenses, not of your income.
Jason Hamilton (15:31): Okay. Just what your expenses are for you to live and get that into a high interest savings account. You can look at online accounts like you know a lot of places have now at least one 1.8% or so, Ally, Betterment. So a lot of those out there can get a high interest savings account there. So get that into higher interest savings account somewhere. It's not easily touchable and put that aside. Then once you get that, then I want you to go back and take care of your original student loans before you do any additional investing because those are going to come up at some point. You're gonna have to deal with that at some point. So I'd rather have to deal with them now where you used to being a broke student and just get those out of your life? Because if you can do these three things, then by the time that's done and you know, ideally you'll be out of school at that point, then you can go full speed when it comes to your 401k. Those are my kind of first few steps I would go. What are your thoughts on that, Naseema.
Naseema McElroy (16:16): I agree. I love that methodology and I feel like it's very clear and people are like, okay now I got this handled and I think it unfogs the situation for her 'cause it's clear that she is very confused and is in like a state of kind of cloudiness and that drives inaction. And I like this plan because it's very action-oriented, but it's very simple to understand. The one thing I do want to ask you, so you said invest up to the match right after you have that one month of expenses, but what should she be investing in?
Jason Hamilton (16:48): So this is a good question. I'm guessing Kaitlin's young. Okay. So it sounds like she's got her first job. Maybe she's got a career change. She's probably less than 40-ish. That's a probably a reasonable assumption.
Naseema McElroy (16:56): I think that's a reasonable assumption.
Jason Hamilton (16:57): Yeah. If you're in your twenties thirties or forties, what's most important is actually your contribution rates, not necessarily what you invest in. Okay. So you know most 401ks are going to have a target date option. If you're just getting started, you know the name of my business is keep it simple, right? Keep It Simple Financial Planning. I think the best thing you can do is keep it simple and just pick a target date fund that matches the age you'll be at 65 and generally, let's say you're 30 today, it's 2020 so let's add 35 years on that. So it'd be a 2055 fund, right? Am I doing the math right on that? That's just the easiest way to get started. Most harvest date funds are reasonably low cost. You know, they're very easy to get started. You just pick one fund and just dump money in and until you get to at least, you know, 50,000 bucks. I mean I think that's a reasonable place to start and I don't think you need to be fancy because those funds are going to do everything you need them to do for you and you don't have to stress out about it. You just pick one fund, dump your money in there. That's what I would say if you're in your twenties thirties and forties
Naseema McElroy (18:01): so typically when we sign up for our 401ks, they kind of have like when you're choosing your investments, they kind of have like this risk tolerance quiz that you're going to have to go through. That kind of determines your allocation. Do you see that often or do you just see that they just set you up based on when they assume they're going to retire?
Jason Hamilton (18:23): Yeah, I mean usually it's both, but the problem with with a lot of these 401k ones and even like the online Robo Investor, Betterment types of ones, they're agencies, they're heavily age-based. They're not like when I'm working with a client to do that, that's one tool we're going to use, but I'm also going to look at what their goals are, what the return needs are, how much time they have, and then you know, walking them through the history of what's happened in the worst market downturns. I think that's okay, but for most people, you know the idea with your 401k is you just put money in there, never look at it, just check it once a year or something like that, but like never look at it, never mess with it. The majority of millionaires and multimillionaires that I work with that are retiring today, that's mostly what they did, 10 to 15% in their 401k.
Jason Hamilton (19:06): A ton of them just picked a target date fund, call it a day and they ended up with 800,000, a million dollars, $2 million depending on how much they contributed and that's all they ever did. When you go to take money out of your 401k, then you have to get a lot more technical I think on for distributions. But at 20 or 30 again until you start hitting like 50,000 at least, or 100,000 then you could probably start getting a little more fancy with things. But if you're just getting started today, I want Kaitlyn to keep things as simple as possible and if she just picks a somewhere between 55 and when she would be 55 and 65 just pick the day, there's going to be like 2040, 2045, 2050, 2055 almost every 401k I've seen or 403b has those funds in them and generally you're better off just picking out versus trying to pick your allocation when you're putting in, you know, a couple of hundred bucks a week. It's just not going to be life changing. It's more about contribution rate at that point.
Naseema McElroy (19:54): Exactly. I love it.
Jason Hamilton (19:56): Yeah, but I think she has some steps first so it doesn't sound like I'm going to go to school. Back to our question here. Yeah, she's just starting her BSN and we know she has student loans currently. We don't know how much she has no idea how to begin and what she should choose when it come to 401k. So Kaitlin, until you get one month of expenses and you figure out can you cash flow the rest of your nursing program, I don't even want you looking at your 401k yet. It's just, it's not going to be a better return. Most likely not. At least you can't guarantee that much return. Okay. You can't guarantee seven to 10% in your 401k. So I want you to pay for the rest of your school with as much money as you can possible. So the next thing she says is, I am terrified about all these loans and there's so much talk about nurses doing different things and I don't know where to start.
Jason Hamilton (20:39): So let's go back to what you mentioned here, the risk tolerance questionnaire. If someone has fear of these loans, you know, we can talk about investments all day, but if she's going to be losing sleep every single night, that stress and those thoughts going through her head are going to be keeping her, like you said, away from making clear decisions that are as logical as possible because you're looking at student loan, you're looking at this debt on your back. So this is what I want you to focus on, not taking on more and getting rid of this debt before you really start investing because once you get this stuff paid off, you're probably gonna be able to put thousands of dollars per month. 'Cause at that point you'll be into your nursing career. You have a few years of experience and you probably have enough to start, you know, doing big damage when it comes to investing for the long term.
Jason Hamilton (21:27): But if you have this fear and hesitation, you're not going to take career risks. You're not going to quit the job. You're at for a better job because you're scared of this student loan payment coming in. I see this all the time and this is why I want you to have at least one month and I want you to get the three months right, or maybe even six but at least three months because you know if you're not happy at the job that you're in and you have no money and you have debt, you got to pay and you got bills. Maybe you have kids, you got cover, you're going to be stuck in this job, not doing everything you can to advance your career because you're living in fear versus being confident and being, having that power of saying, I got money in the bank.
Jason Hamilton (22:02): I don't give a F about what you're saying to me. I'm not happy here. I'm going to move on because even if I don't have a job for two or three months, I'm going to be fine. I want you to have that power to do that because so many young people don't have that. But the ones that do, those are the ones that actually advanced their careers a lot faster because they can make those power moves, they can move across the country, they can move to another city and not worry about it 'cause they have that money to cover themselves in between.
Naseema McElroy (22:24): I love that Jason. Too many nurses that don't have the opportunity to speak up for things that aren't right, to leave a toxic work environment because they are bound to these jobs and because of debt and just even if you have debt but you have that security of having those savings, I feel like it enables you to be a better nurse overall. It decreases your chances of burnout and all those things. So I'm so happy you brought that up because that is a serious problem in our career and I feel like you don't have to have it all figured out financially to be able to be the best nurse possible. But if you do have that cushion, you know that you can be the patient advocate that you need to be and you can speak up for yourself and make decisions that are going to serve you better if you are not stressed about money.
Jason Hamilton (23:16): That's huge because I think we've all been in a toxic work environment before and I was there, you know, I had $28,000 of student debt that I had to pay off and I got out of school that I have to take that no, I was stupid and party too much and I worked the whole time and I made good money, but I still, I took those on anyways. I just had no financial education. I was not financially literate at that point. No one ever taught me. Right. So I had to learn this stuff. So I'm hoping that the internet now, there's so much available information people start taking this on, but the ability to say, I don't need this job, I can go find another job and I'm going to get out of this sick, twisted, toxic environment that everyone around me, it's just negative.
Jason Hamilton (23:53): That's going to deliver you so much better returns over time 'cause you staying in a positive mental state and being able to have that choice that's going to give you just this confidence in this, this you're going to have this energy and light around you that when you go into the next job, they're going to see that and know that say this person's different. And I do believe that the debt system is meant to keep people trapped in jobs that they don't like and that they're not happy in. And I really do think that that's the case. And so, you know, this whole college game, I mean to be a nurse, to be a CFP, you do have to get a college degree, but the next 10 or 20 years I think we're going to be seeing a big shift in an environment. I think the colleges are in big trouble and then people are waking up to this stuff because if you're stuck in debt and you're trapped, you know you really have less options. And I think people are waking up saying, Hey, this doesn't make a lot of sense. The payoff isn't there Like I thought it would be in nursing. I think it is still medical field is still is, but in a lot of fields, especially like the humanities and social sciences, it's just not there that the return on investment just not there and it's kind of that deal. So shall we recap and wrap this one up here for Ms. Kaitlin?
Naseema McElroy (24:58): Yes, please.
Jason Hamilton (24:58): Okay. So ms Kaitlin, your step number one is sit down and write your budget out. Okay? Get your first paycheck. Look how much you're taking home, figure out how much you have taken home, and then write out all your expenses and look at is there a gap between what you're taking home. And you know what you bring in right here. So whatever this gap is, your first goal with that gap is to figure out, once you figure out your one month expenses, get that money aside, pay the minimums on everything else until you get one month of expenses put away in a savings account. That is sacred money. You do not touch that money unless it is an absolute emergency. Okay? Number two, look at your student loans. Are they subsidized or unsubsidized? If they're subsidized and you're not going to be paying any interest on your current loans, then for sure the next question is how can you pay as much as possible towards this finishing your degree here.
Jason Hamilton (25:49): Okay. Along with that is visiting human resources and seeing is there a tuition reimbursement program and getting, figuring out what that is and how much they can reimburse you for. If you can get all of your school paid for, then wonderful. Now we're going to go back and finish off the school loans that you have and get those done and then we're going to save about three months of expenses and then we can talk about investing in your 401k. That'd be your game plan for me, for you. If you were coming to me and ask me what, what you should do in this situation and everything matches what we said essentially. So, thoughts?
Naseema McElroy (26:19): I think it's solid advice. I love it and I think like I said, it takes a lot of the indecision and a lot of the fear behind, the fear is apparent in that question and fear paralyzes people and I feel like this is the perfect time and I'm really commending you for asking the question because this is the time to make a valuable decision that is going to affect you for the rest of your life. I wish I had have known this information as a new grad and it would have totally changed my financial trajectory. So I commend you for asking the question. I think that this plan is solid and I hope that you could follow it and know that if you do and set this, if you get this piece right, so much of your other financial life will be so much easier and so excellent advice, Jason. I love it.
Jason Hamilton (27:14): Cool, so I'm going to throw up this link here to your site and that if anybody has a question and they would like us to answer that, they can go to nursesonfirepodcast.com/ask once again, that's nursesonfirepodcast.com forward slash ask and we love your questions. The more detail you can give us, the better. Like we didn't know how much student loans Kaitlin had sorts of things that we had to make some assumptions on. So if you want to give us a full breakdown of her situation, that'd be really helpful and that's the better way we can guide you. So that's what we have for you today. Hopefully, you guys enjoyed this and we'll see you on the next one. All right, have a good day.
Hey there I’m Naseema
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