Recently I received this note from a reader:
I have great news to report in than my oldest son who graduated from college this past December will be starting his first full time job tomorrow. He has a degree in industrial and entrepreneurial engineering (engineering and supply chain management). He graduated from the honor college with a 3.68 GPA and is a member of the engineering honors fraternity which only accepts members with a 3.5 GPA or higher.
He will be working for a major manufacturing聽plant where he interned for the past two summers. I want to say that these were PAID internships not like the unpaid most liberal arts internships are and he was paid well which covered a good portion of his last 1 1/2 years of college. His salary and benefits are quite generous and he will be making boatloads of money. He only has $7000 in college debt thanks to his mom and dad and he did manage to receive some scholarship assistance but probably only like 3/4 of a year’s worth.
He is an Eagle Scout so he did have to go through a personal management merit badge that introduced him to the basics of personal finance but he will definitely need more. To give you his baseline of knowledge here is a link to what he was exposed through scouts.
He also has learned from his dad some basic skills but I know he will need more. The biggest thing now is educating him on what he has, what to do and helping him manage his salary, spending, investments and benefits. He is already frugal which is a great start. I will be taking him on a journey of real world education and not the world of hard knocks learn it yourself.
Where I am going with this is I was wondering if you wanted to do a piece on “what advice would you give a young person just starting out with minimal college debt and who will command a well-compensated salary and benefit package”
Thanks for the suggestion. I think I would like to do a post on that. 馃檪
First of all, congrats to this reader. I’m just now starting the college process with my daughter (which I’ll write about soon) and if her college time goes as well as his son’s, I will be very thankful and proud.
Second, here are a few thoughts from me on what any college graduate should consider when beginning to learn about managing their money:
- The first step is to know how to measure wealth. If you don’t know how to keep score, how will you know if you’re headed in the right direction?
- Next you need to track your cash flow. This will help you keep expenses under control and save as much as possible.
- After those steps, you just need to focus on three easy things: 1) Earn, 2) Save, and 3) Invest. If you do those while shooting for an overall financial plan, you will be in good shape!
And of course you should read ESI Money for specific details, right? 馃檪
So, let’s turn it over to you now. There are many new graduates out there looking for money management advice. What would you tell them?
George says
I would tell him (and my 26 yr old self if I could) that you don’t have to put away the max amount for a Roth IRA so put away what you can. I work with a young woman (~24) who puts just 1000-1500/yr in her Roth IRA, and that’s a lot better than nothing!
ESI says
Yes! Wish someone had told me that when I got out of college.
I wasted several years before I got serious about saving.
Jon says
Wow, he is off to a great start and very similar to myself coming out of undergrad.
My first piece of advice would be to take the GMAT exam now. Your scores will be good for five years and if you go the corporate route, you may find that you’ll want to go to business school for an MBA. You’ll be much sharper right now than three or four years out of school to take that type of exam.
My second piece of advice is to allocate at least 20% of your income to savings. Put at least 10% into a retirement account or at least enough to get any company matching that may be available. With the remainder, start saving up to buy a house or apartment in a few years. Until then, it can act as your emergency fund.
My third piece of advice, and these are not necessarily in order, is to bust your butt at the office and do a great job! Your career will be the primary driver of your net worth over time and getting off to a fast start gives you a huge advantage.
Best of luck!
ESI says
All great suggestions! Thanks for leaving them!!
JimL says
Have him read “If you can” by William Bernstein. I think there is a PDF on this on the Internet. My son just graduated as well and starts his new job at a big 4 firm.
I have given my son many books on investing over the last several years, but I find that this article sums it up. Rey well for this age group.
ESI says
Here it is:
https://www.etf.com/docs/IfYouCan.pdf
Mike H says
I’d recommend to lower your expenses as much as you can to get to a 50% savings rate. Try and bust your butt to get to the first $100K of savings, which should only take a few short years if you follow the advice given above. This is the first seed to be used for investments. At the same time continue to develop and grow your career.
A few hard years after graduation mean that you can let up off the gas in the middle and second half of your life. Plus it only gets easier as good habits have already been created at the start.
-Mike
JayCeezy says
+1
Was going to leave a stand-alone comment, but Mike H (as usual) has the correct answer. The books, the learning, the investment strategies, they will all come with a little experience. The one thing NOW that ‘Reader’s Son’ can execute is Savings. Live at home. Drive an old car. Live with roommates. Move in with a Korean family, if you need to really see how it is done. The first $100,000 is so hard to accumulate (forget Roth IRA, the tax break isn’t worth it in early earning years), but once it happens then opportunities (and the motivation for comprehending the books/strategies) unfold.
Also, have him click on my link for a perspective on how to make $1 million work for him.
Abhi says
+1 for Mike H.
I have not read OldLimey coments for a long time.
Mike H says
Thanks for your comments JayCeezy and Abhi,
I speak from experience. I graduated with a Masters in Mechanical & Aerospace Engineering in 1996 and started working making $43K a year, and saved more than 50% after tax, by switching from living alone the first year to living with roommates in an ultra-cheap place. Once you get to a few hundred thousand in savings you can start to put these into investments (CD’s at the time but blue chip stocks or index funds will be fine too) and you can see the investment income coming in on top of your salary. The model really works. The other beauty of the model is you need less to have saved up since you are already accustomed to living a low cost lifestyle and freedom from working in an unpleasant job is generally far sweeter than having more creature comforts and becoming ‘accustomed’ to a larger lifestyle which then ‘feels’ as normal and becomes very hard to cut amenities, especially once married with both partners accustomed to the lifestyle. It’s a seductive trap.
It’s been 20 years since I graduated and started working and since that time I’ve aggressively grew my career and now earn close to 10 times what I earned back then. In addition I have a portfolio of over $2M spitting out cash every month to the point where at 43 (turning 43 in a few days) our household is able to nearly fully cover all expenses just from the cash being returned from investments and all my income from work is going into savings for- you guessed it- more investments. We have a 3 year old daughter so I don’t plan to stop working although it’s nice to know that I could if it comes to that.
That’s what I mean by saying by building up a buffer by saving 50% of your income when you start working you put yourself on a path to an easier middle and late life. We are experiencing just that. About 3 years ago we really let up off the gas and bought a large penthouse in the city after our child was born and let our expenses climb significantly. Now when we travel we often stay in a $300 – 500 / night place, not every night mind you but fairly often, especially when traveling with our parents, and blow a lot of money on education and child entertainment related expenses. But we still keep this to less than our passive income coming in and if we want to trade up more we need to bring in more recurring sustainable passive income. If I can keep working at a high level job for another 10 years the compounding will really begin to go haywire and we should have a large margin of savings after expenses, from our passive income which will then be reinvested. It gets addictive once you see it play out, it’s like building a perpetual motion machine in real time.
I wish you all luck on your journey but having a well paying job and a roadmap at an early age is the key to success. I stumbled upon this by intuition and luck but I’m happy to share it with others. Because it’s not necessarily easy I know that not many will do it but for those who do it there is a very high probability of success.
-Mike
Param says
i once read about a prof’s farewell speech to students moving on to jobs… he asked them to quickly create a ‘go to h*ll’ fund. this would be of help whenever they felt their jobs or bosses as asking them to do something that violates their sense of morals & ethics – this fund would help them take a decision without having to depend on the job to fund their dinner that night. i think this is very important advice for youngsters who are exposed to something wrong but lack to financial conviction to speak up for what’s right.