Recommendations for New College Graduates
For those of you that are about to graduate, graduated recently, or have kids that are about to graduate (it’s that time of year), this article is dedicated to you. Speaking as a parent, I know there are things that we want to say to our kids as they prepare to start their first full-time jobs and/or move out on their own. Of course, saying these things doesn’t mean our kids will listen, but I figure it’s better to say them and be ignored than not to say them at all. If nothing else, this preserves our right to say “I told you so” later.
Based on my personal experiences, mistakes, and research, I’ve come up with a list of recommendations about things to do and books to read. I also asked some other people I know to offer their own recommendations and have added them.
PAY YOURSELF FIRST – The first thing you should do every time you get paid, is put money into a savings program. It’s best to do this with some kind of automatic deduction from your paycheck, so you never have to think about it and won’t have to fight the urge to spend the money immediately. For most of you, the best place to put the money is an indexed universal life insurance policy (IUL), where it will compound tax-free until you need it. After the first few years, you’ll have access to most of the money whenever you need it, without income taxes or penalties for early withdrawal. Over time, the cash value will safely grow to provide a retirement income free of income taxes. If something happens to you, your family will get an estate without income taxes. When you consider the potential for growth, safety, access, and tax benefits, there is no better solution for most people. I’m not going to go further into the details in this article (there are other articles about IULs on this website), but I strongly recommend that you read the books “The Better Money Method” by Terry Laxton, and “Tax-Free Retirement” by Patrick Kelly.
MINIMIZE YOUR DEBT BUT BUILD YOUR CREDIT – If you follow my first, and most important, recommendation and save money in an IUL, you won’t often need to borrow money using your credit score. You’ll just take on-demand policy loans from your IUL, then pay the money back to yourself with interest whenever you please. You’ll buy a car this way, respond to emergencies this way, pay for your kid’s college tuition this way, among other things. However, you may need a good credit score to buy a house, so do this by making payments on time (student loans?) and keeping your credit card balances below 50%.
SET UP A BUDGET AND TRACK YOUR FINANCES (from my long-time friend Steve Bunyan, who follows these rules better than anyone I know) – As soon as you know what your net income will be each month, subtract the amounts going into your savings plan, rent, and utilities each month, then make a plan for the rest and track every penny for at least a month (90 days is better). If you don’t know precisely where your money is going every month, how will you know why you run out of money before you run out of month? Sticking to a budget will help to minimize your use of credit cards when money gets tight. Believe this – if you stick to your savings plan and your budget, you will avoid having debts and your standard of living will increase every year. Isn’t that what you want?
START OUT WITH A USED CAR, PLUS FURNISHINGS FROM A THRIFT STORE – It’s well known that the value of a new car takes a huge drop as soon as you drive it off the lot. The best values in cars are 3-5 year old, low mileage, lease returns. These cars have generally not been driven hard (check with a service like Carfax to look for problems and have the car inspected by a knowledgeable person) and should serve as well as a new vehicle. The same is often true of furniture purchased at a thrift store. If you shop around, you will find good furniture that is as good as new, but costs a whole lot less. Buy a new mattress and bedclothes, but buy a used bed or frame and headboard.
KEEP YOUR SPENDING IN CHECK AND LEARN TO COOK – Be aware that income taxes are going to greatly reduce your income (that guy named F.I.C.O. that takes so much of your paycheck is the money you’re paying into Social Security). If you buy Starbucks coffee, alcoholic drinks, and fast-food for every meal, your spending will be way too high and you’ll be tempted to cut back on your savings. DON’T DO IT! For the price of a single burger, you can buy an entire loaf of bread. Experiment with condiments, meats, eggs, veggies, until you can make a handful of different sandwiches. Eat microwave meals that include veggies or split the cost of the many “skillet” meals that are available now with somebody else. Try to limit yourself to just $10 a day (or less) for food.
Here’s everything you will ever need to know about eating good food – You want to eat good fats/oils like olive oil and coconut oil, eat a moderate amount of protein from a variety of sources (mostly eggs, chicken, and beef), and eat lots of carbs with fiber (veggies, not grains!). Avoid sugars (soft drinks, candies, etc) and other carbs without fiber (potatos, most breads and other starches). You should especially avoid high-fructose corn syrup and chemical-based sugar-substitutes in so-called “diet” foods. You have undoubtedly heard other things and the news is always full of the latest and greatest new thing. Ignore it all and just follow what I’ve written. Keep your total calories under 1,800 per day unless you’re an athlete in training.
GET YOUR FILES ORGANIZED AND KEEP THEM THAT WAY – Keep a file with all your important papers and put them in a safe place. MAKE COPIES and put them in a different place. Buy a small used file cabinet or pick up something at an office store, then use it. Don’t just add to the stack of papers on top, file them in folders inside (this is from the “do as I say, not as I do” category).
BUILD YOUR PORTFOLIO INCOME THROUGH INVESTMENTS AND LIFE INSURANCE, AND USE THAT TO PAY OFF YOUR STUDENT LOAN DEBT, HOUSE PAYMENTS, AND CAR PAYMENTS (if you can’t avoid them) – In his book “Rich Dad, Poor Dad”, Robert Kiyosaki talks about how poor people borrow money to pay for things they want and get saddled with debt payments. Rich people invest in things like businesses and securities and life insurance that produce income, then use THAT money to pay for the things they want. Your plan for the future needs to include a way to stop trading your time for money (like an employee), and start building an income that does not require your own time and effort to maintain it.
KEEP READING AND LEARNING – You should NEVER stop learning new things. Keep reading and taking classes. You may have a college degree now, but your education should never end. But don’t just be a sponge for trivia, put the new information into practice! THAT’S how you convert information into knowledge. Meet and be exposed to new people. Become an expert at networking as taught by Harvey Mackay in “Dig Your Well Before You’re Thirsty.” USE the new things that you learn. Read about exotic locations, then go visit them!
Kenny Kim, another agent in my office (thanks, Kenny!), recommends the following books –
“The Power of Habit: Why We Do What We Do in Life and Business” by Charley Duhigg
“Drive: The Surprising Truth About What Motivates Us” by Daniel H. Pink
“The Complete Works of Shakespeare”
“How To Win Friends and Influence People” by Dale Carnegie
“Think and Grow Rich” by Napoleon Hill
“Outliers: The Story of Success” by Malcolm Gladwell