As I reflect back on my college years I mainly remember how much fun it was and then once I entered the ‘real world’ feeling a bit shocked at the reality of it all. There is definitely a feeling of leaving one world and entering another completely different one. I also remember receiving very little coaching about how the new world game was played. That led to a lot of mistakes…or what I now call “learning opportunities”. In this two-part series, I’ll share with you twelve of the lessons I wish someone had shared with me back then.
- Be flexible in finding a job. I recently read an article attributed to the White House stating that real unemployment is zero percent. Don’t you believe it! The job market, particularly for college graduates, is particularly tight. In this market, you may find that you have to ‘settle’ for a less than ideal job. Your goal is to build work experience as you continue to pursue your dream job. Whatever the job is, treat it as if it’s the best job in the world and your goal should be to master the position. Learn the habit of always giving your very best. People (employers) will notice.
- Get more education. The alternative to getting a job now in a challenging job market is to get more education. When I graduated from college I was very ready to be finished with school but in today’s environment an MBA or other advanced degree can be very valuable and buy you some additional time for the job market to continue to improve.
- Begin saving from your very first paycheck. This habit, more than anything else, will make you wealthy over time. It is the single most important key for most people who become financially independent. Start with a minimum of 20% of your paycheck…more if you can swing it. Ten percent will be for long-term investing and, in a separate account, the other ten percent will be for future ‘big ticket’ items such as down payment on a home. Set this up so that the money is either automatically taken from your paycheck or transferred from your bank account to an investment account. Don’t ponder this one…just do it!
- Learn about personal finance and investing. If you were to commit fifteen minutes per day to studying personal finance and investing, you’d be a ‘genius’ in a year! Seriously, this stuff turns out to not be that difficult to master. Mostly, it’s simply paying attention to your money and investing on a consistent basis.
- Buy a home. Since the housing bust in 2008, home prices have rebounded but it’s still a great time to buy a home and home ownership is a great way to build wealth over time. More good news is that interest rates on mortgages are still very attractive but realize that rates are likely to rise over the next few years so your best move is to buy as soon as you can.
- Avoid ‘bad’ debt. If you could learn this lesson now, it will save you much misery in the future. The definition of bad debt is any debt that is used for purchasing something that is declining in value. For example if you use a retail store credit card to buy a closet full of clothes and then face months’ worth of payments…that’s bad debt. Using a credit card to finance a big night on the town when you know you can’t pay the credit card bill in full when it rolls around…that’s bad debt. Buying furniture and appliances on credit is bad debt.
- Avoid bad debt around owning a car. I once had someone tell me, “I thought you always had a car payment!” He was dead serious and he was also broke! A car, by definition, is a depreciating asset. In fact, when you drive a new car off the lot it depreciates in value about 10% that very day! Most people arrive at the dealership, find their dream car and ask the salesperson, “How much are my payments?” You’re asking the wrong question of the wrong person! Dealers have been asked this question so many times that they figured out the perfect system to sell more cars and more expensive cars. To get payments as low as possible, they’ll now finance a vehicle over as long as eighty-four months! This is a terrible financial strategy for you. Here’s a better approach: If you don’t have cash to pay for a car, decide on how much car you can afford based on payments over twenty-four months. In all likelihood, this will be a used car. Once you pay your car off, continue to make ‘payments’ but now do it in an investment account dedicated as a new car fund. Continue to drive your existing car and fund your ‘next car account’ until you can pay cash for your next car and then keep this cycle going forever. That way you have your money working for you rather than for someone else.
- Embrace the concept of ‘Good Debt’. Good debt is the use of financing to buy things that you expect to appreciate in value. The best example is buying a home. Other examples include borrowing for investing such as buying rental properties or to start a business. Even borrowing to advance your education can be a good use of debt.
- Protect yourself from adversity. Great health may be your greatest asset. There’s an ancient proverb that goes something like this, “A man with good health is a man of a thousand dreams. A man with poor health is a man but with one dream.” Like consistent investing produces wealth, a consistent program of exercise and good nutrition yields good health. This should be one of your top priorities. Believe me; it’s easy to allow other things to seem more important. In addition, build cash reserves in a money market account equal to at least three to six months of your paycheck as a buffer against the unexpected expenses. Also, make sure that you cover the insurance basics including owning disability income insurance, health insurance, auto insurance and life insurance if you have family dependents.
- Prepare every day for retirement. Ninety-seven percent of Americans arrive at retirement pretty close to dead broke. The reason? They felt they could worry about that ‘next year’…only next year never came. Most companies offer some type of retirement plan that you can participate in and some also offer matching contributions. But whether your company does or doesn’t have a plan you should set one up. Your best first choice may be a Roth IRA. To learn more, visit www.Vanguard.com and type ‘Roth IRA’ into their search engine.
- Cut the parental cord. I just read an article that stated that 30% of millennials live with their parents! Reflecting on my thirty-plus years as a financial advisor, I’ve noticed that the most successful children have been those who had to ‘make it on their own’. More so than at any other time, I see so many ‘helicopter’ parents who insist on helping run their children’s lives well into young adulthood. Yes, it’s time to leave the safety of the nest, spread your wings and fly! You can do this and you’ll be proud of yourself when you succeed. So will your parents!
- Always be learning. Just when you thought you were finished with education, I’m telling you that you are just getting started. There is no greater investment you can make than in yourself. A primary life goal should be to be an insatiable learner. Identify successful people in your chosen field and model what they do. In fact see if they will act as a mentor to you. If you ask, you’ll find most successful people are very willing to offer periodic guidance.
Realize this…as a college graduate, the only limitations you have are the ones that you place on yourself. Create a vision of what you would like to accomplish; develop a written plan; be prepared to ‘correct and continue’ along the way; and focus on continuous improvement. There is nothing you cannot achieve!
Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the co-author of J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning (John Wiley & Sons, Inc.) and THINK Like a Self-Made Millionaire. Visit his Web Site www.welchgroup.com. Consult your financial advisor before acting on comments in this article.