A few months ago my alma mater, Bucknell University, asked if I would put together a presentation on my top ten money tips for recent college graduates. It wasn't easy picking just ten tips out of the many I'd want to share with new graduates, but below is my list. You can actually view my entire presentation online here.
- What You Don't Know WILL Hurt You - Clients of all ages and at all levels of wealth come to us for financial advice. The one thing the majority of these people have in common is that they don't know what their annual living expenses are. Knowing this number is critical to planning for your future and today's technology makes it easier than ever to monitor this. Remember, you don't have to budget, but you DO need cash flow awareness!
- Before You Invest, Build a Super Bowl Fund - Sure, most people call this their "emergency reserve" but nobody likes to save up for something bad to happen, right? Instead, motivate yourself to save for something good. I use the example of my Ravens making the Super Bowl in 2013. My wife and I had always talked about going so when the opportunity presented itself, we had the cash reserve available to pay for the trip. I suggest shooting for 3-6 months of living expenses as a cash reserve when you are first starting out.
- Start Investing Early! - As Albert Einstein once said, "Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't, pays it". Once you have built up a cash reserve it's time to start investing, and the sooner the better.
- Don't Make a Deal With The Devil - If you can't pay for something that you don't absolutely need right now, then don't buy it. Racking up debt will derail any long-term financial plan and it tends to have a snowball effect that is difficult to get out from. Taking a loan out to buy a house or car might make sense but you still need to take time to think about how much you can afford and never start that discussion with the monthly payment amount. Look at the total cost of the loan to really understand the implications of such a major decision.
- Minimize Lifestyle Creep - I covered this in depth in a prior blog post so I won't say too much here. Just make sure you don't let your spending get out of hand as your income rises.
- Never Stop Learning - You might be tempted to think your education has finally ended after years of schooling, but education never truly ends. Sometimes the best investment is to invest in yourself. If earning an additional degree or certification can lead to a better career and higher earnings, that investment could be much more valuable than your 401(k) in the long run.
- Insurance is NOT an Investment - Insurance is like a life preserver - you hope you never need it, but you sure are glad you have it if you do need it. Don't think of insurance as an investment that you will eventually use, think of it as an expense for something you hopefully never need.
- Behave Yourself - Investors continually underperform their investments. Why? Because we can't sit still and we always want to jump out of the investment that performed poorly and into the investment that has done well. We might think that seems illogical but our emotions get the best of us, especially in times of market turbulence. Have a financial plan and make sure you stick to it, in good times and in bad.
- Be Prepared - While it's important to have a plan as I mentioned in the last point, you also need to be prepared for unexpected changes to your plan. Your plan might be to save 10% per year in order to retire at a certain age, that plan might be derailed if you lose your job. So be prepared to adjust your plan on the fly and don't be discouraged if you do.
- Watch Out for the Wolves - The field of financial advice has plenty of unsavory characters who are more interested in helping themselves than helping you. But contrary to what you see in the movies, there are actually plenty of great people giving real financial advice. Look for someone who is a fiduciary, which means they put your interests first. Look for someone who is fee-only, meaning they don't accept commissions for selling financial products. And make sure you know what you are paying. Real financial advice isn't cheap, but cost isimportant and you need to know if you are getting the best value for what you are paying.
Because I had so much trouble picking just these ten tips, I included 8 bonus tips in my presentation. I'll write about them in a future blog post!