Post graduate decision making during the best of times can be overwhelming. How terrifying must it feel in the midst of a world-wide pandemic and economic meltdown? My heart breaks for all of the college seniors across the country.
There is likely much grief, confusion and fear. Maybe your dream employer implemented a hiring freeze. Or there are no jobs available in the field you spent four years preparing for. I am sure you are asking - what am I going to do now?
I have such fond memories of my alma mater, Truman State. I was a sister at the Alpha Sigma Alpha sorority, and at that time had no idea how to manage my finances as I took my first tentative steps out into the working world. I couldn’t wait to get out there and start making my own money, but I don’t think I ever stopped to actually consider what I would do with it once I had it – beyond the typical mistake many of us make of shopping, shopping, shopping!
That’s why I felt it was so important to share the knowledge and experience I’ve built up the hard way since graduating college over two decades ago, and do my best to impart twenty years of real world experience and financial expertise. It is my sincere hope that my words will reach the eyes and ears of those who need it, and help set you on the path to lasting financial confidence.
And so I write this financial advice for new graduates as I would to my 22-year-old self, and all the other young women and men about to embark on this new stage of their lives. Walk bravely and with confidence, dear ones. Like every crisis before it, this pandemic too shall pass and you will enter a changed world full of opportunities you can’t even imagine today. Dream big, say yes to things that scare you, and be sure to use your money wisely.
Understanding the True Meaning of Wealth
One of the most fundamental pieces of advice I want to impart is the importance of forming a real awareness of what having wealth actually means. This has less to do with the practical aspects of launching into the “real world” and more to do with having an overall philosophy around wealth. Having lots of money is not the only thing that makes you feel wealthy. In fact, if this is all you have, the chances are you will feel deeply unfulfilled.
Over the past two decades of managing not only my own finances, but those of wealthy clients, I have come to learn that there are four key types of wealth that encompass our lives as a whole, not just our bank balance. Only when you can successfully nurture and appreciate each of these areas, will you be able to feel genuinely wealthy. Being rich in money is all very well, but living a truly rich life holds so much more value.
The Four Different Types of Wealth
- Financial Wealth (Money)
- Social Wealth (Status)
- Time Wealth (Freedom)
- Physical Wealth (Health)
Each of these four areas need to intersect perfectly in order for true wealth to be achieved. For what good is money if you are too unhealthy to get out there and really enjoy it, or too busy with work, or have no one to share it with?
As you enter the workforce, be wary of jobs that lure you in with money and status, but rob you of your freedom and health. Be sure to always ask yourself “What do I value about money” (freedom? security? time?) and always align your financial goals – and the way you earn and spend money – with those values.
If you have a hard time doing this, consider hiring someone to walk you through the process. It may seem like an unnecessary expense to work with a financial advisor, but it can be one that pays off in a myriad of different ways.
Top 10 Pieces of Financial Advice for New Graduates
Now for the practical tips. They may appear simple, but require discipline, and will be almost impossible to achieve if you don’t understand what’s important about money to you (and why) first. But they are a good financial “rule of thumb”. And they are free. Which is good because you most likely have little to no money at this point!
Read these carefully. Save them to your device. Print them out and stick them on your fridge. Memorize them. Do whatever you need to absorb their value and take the advice to your core. Act on them with tenacity, and they will guide you safely towards a life of true wealth.
01. Underspend your income. How much do you have coming in, and what will be going out? Always live within your means.
02. Take ownership of BOTH your income statement (how your money is earned) and your balance sheet (how your money is invested). They are equally important. I have seen over and over how comfortable people are “controlling the checking account” and have no idea what is happening with their investments. Don’t let this happen to you.
03. Have an emergency fund that exceeds six months of your expenses. Three months is the minimum. You have just lived through the reason why this is necessary. Having cash is like having an extra kidney. You don’t really need it. Until you REALLY do.
04. Pay yourself first (savings) and make this as automatic as possible. Here is the order of priority to pay your future self to ensure your financial freedom when you can no longer work: Max your 401k up to the match, then max your Health Savings Account, then max your Roth IRA contribution. With any excess, top off your 401k savings to ensure you put no less than 15% of your salary (including your employer match) into your employer 401k.
05. Keep your investments simple and straightforward. It is better to “average into” the market (i.e. save every month) and to do it when you are young, than to try to catch up later. Stocks are ownership of a company and have unlimited upside. With bonds you are a lender and the best you can do is get paid back. Invest more in stocks when you are younger. Gradually change your allocation to more bonds as you get older.
06. Diversify, diversify, diversify. Both your investments AND your marketable job skills.
07. Leverage (debt) is neither good nor bad in and of itself. What matters is what you do with it. It is better to use debt for an appreciating asset (house) than a depreciating one (a car). Consumer debt (credit cards) are the worst kind of debt. Pay off 100% of your cards every month. If you have a lot of student debt, develop a plan to reduce it as soon as possible.
08. Insurance is simply a hedge against uncertainty and a way to manage risk, especially if there is a catastrophic event. The pricing for many of the insurance policies that you must have (home and auto) can be tied to your creditworthiness, so pay all your bills on time and keep your credit score above 700. Once you have a family, life insurance protects your family if you die too soon. Term policies are best for the majority of young families.
09. When and if you get married, know that it will be the single biggest financial decision you will ever make in your entire life. Treat it with the respect it deserves and do your due diligence.
10. Invest in YOURSELF. In experiences, knowledge and your health. This will always be money well spent. And remember that everyone makes money mistakes. I made them, your parents made them. You will make them, too. Be kind to yourself and remember that no one is perfect.
Move Forward with Confidence
It took twenty years of stumbling around making my own and seeing other people’s financial mistakes to come up with this short list. There is so much more for you to learn, but in order to do that, you’ll need to just get out there and live! My financial advice for new graduates will heed you well if you choose to follow it, but life will impart its own lessons on you, too. Be sure to leave a little room to be moved by the unexpected.
I wish you all the very best as you carve out a place for yourself in the adult world. Never forget that you have much to offer, and there is no one in the world quite like you. Make time to have fun. Treat your friends and family well. Eat healthily and take regular exercise, and take care of your finances. And remember:
Being rich is having money, being wealthy is having the time and energy to build a life you love. Live a wealthy life, friends.