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My Best Advice to New College Grads

{ 36 comments }

My Best Advice to New College GradsThis one is for the new college grads out there. Congratulations! Graduating from college is a huge accomplishment. Now, it’s time to go out there and rock the world! I graduated over 20 years ago and I still remember it well. It was such a feeling of achievement to get through 5 years of engineering school. It was a tough program (BS/MS combined) and by the end, everybody was burned out from studying. All of us couldn’t wait to start working and making some money. Fortunately, I graduated at a good time (1996) and was able to find a stable engineering job. That was a great starting point and I built our wealth from there. My journey worked out well, but it could be better. If I could go back and give my younger self one piece of advice, what would it be? Here is my best advice to new college grads.

Keep learning

This is very specific. My best advice is to learn about financial independence. I didn’t discover financial independence until my mid 30s. Luckily, I came from a humble background and I started investing right when I began my engineering career. I knew I needed to save money for the rainy days. By the time I discovered financial independence, we were already most of the way there. The rainy days came and it was a very unpleasant experience. I was able to retire early and escape from the corporate grind because I knew about financial independence. Whew! It would have been better if I learned about it sooner, though.

Like any young person, I made plenty of mistakes. We purchased a big house, drove a BMW convertible, spent a lot of money on entertainment, and invested in the wrong financial products*. It worked out okay, but we would have wasted a lot less time if we knew about financial independence right from the start. It would have given us a focus.

*I invested with my bank’s financial branch. The “free” financial advisor sold us crappy mutual funds with high fees so he could make a commission. New investors should start with Vanguard. You really can’t go wrong with that. Once you know more about investing, you can branch out and invest in other funds and assets. Don’t invest with a “free” financial advisor.

What is financial independence?

Basically, financial independence is when your investment can pay for your cost of living. Once you achieve financial independence, you won’t have to work for money anymore. Many FI people continue to work because they like their job, they want to shore up their finances, and/or they want to feel useful. That’s okay too. You don’t have to stop working if you don’t want to. Financial independence makes working optional and gives you more choices. That will come in handy someday.

Yes, financial independence is possible for regular people. You don’t have to be born rich or make a huge amount of money to achieve financial independence. Here are some concepts that are crucial to financial independence.

  • Saving rates – Your saving rate is your saving divide by income. The higher your saving rate, the less time it takes to become financial independent.
  • Lifestyle inflation – New college grads usually have high lifestyle inflation. When you make more money, you spend more too. This is dangerous because it will screw up your saving rate. Everyone should minimize their lifestyle inflation as much as possible.
  • Investing – If you start investing while you’re young, you’ll be way ahead of everyone else.
  • Safe withdrawal rate – This is one way to define financial independence. It will give you a numerical goal.
  • Start contributing to your retirement plan – I know, I know. You don’t care about retirement right now. But, you need to start contributing to your 401k as soon as you can. The power of compounding is amazing, but you have to start early. Read more here – What if you always maxed out your 401k?
  • Track your expenses – This one is crucial. Most people have no idea what they spend money on. Tracking your expenses will help you figure out how much you spend.
  • FIRE blogs – There are many great resources on financial independence now. Here is my list of great FIRE blogs to get you started.

Good luck!

Alright, I’ll keep it short today. It is Memorial Day weekend and I need to spend some quality time with the family.

In summary, my best advice to new college grads is to learn about financial independence. Just read and keep taking it in. You don’t need to get obsessed with financial independence right away. Learning about it will help you get started on the path to financial freedom. It’s like that movie Inception. Financial independence is an awesome concept. It will be stuck in the back of your mind and hopefully, you’ll look at money differently. Money isn’t just for spending. Money really means financial security and freedom. My life is 100x better now that we are financial independent. It is unbelievable.

Congratulations again and good luck on your journey!

What is your best advice to a new college grad? What would you tell yourself if you could go back in time?

More advice for new grads

Don’t follow your passion – Contrary to popular belief, that’s bad advice.

Investing advice for new college grads – I wrote about investing advice for new grads previously. Now, I realize it’s better to learn about financial independence first. It’s more motivational.

Image credit: Charles DeLoye

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 36 comments… add one }
  • Mr. Tako May 28, 2018, 12:20 am

    When I was new college grad it all seemed so *easy*. The economy was booming and there seemed to be plenty of jobs around. I wish I could have told myself it wasn’t going to be easy. There’s going to be lots of struggle. Stay humble and don’t let the newfound money go to my head. Save plenty of money and don’t trust anyone with that money, *even relatives*.

    Hindsight is always 20/20 of course, but I had to learn plenty of lessons the hard way.

    • retirebyforty May 28, 2018, 8:45 am

      Those are great advice. Stay humble.

    • Revanche @ A Gai Shan Life May 29, 2018, 9:33 am

      ” Save plenty of money and don’t trust anyone with that money, *even relatives*.”

      DITTO ten thousand times. I learned this the very hard way.

  • Accidental FIRE May 28, 2018, 1:11 am

    Good stuff Joe. Wouldn’t it be great if they taught something about finances to college grads?

    When I graduated we were in a pretty bad jobs recession with high unemployment. I was just grateful to get a job at all. I didn’t have the luxury of even considering my passion.

    I can see you being invited to do a commencement speech one day 😉

    • retirebyforty May 28, 2018, 8:47 am

      Thanks! Don’t they have these classes now? It’s crazy to leave it to self education. A lot of people screwed up right from the beginning.

    • Scott May 29, 2018, 8:19 am

      They do if you know where to look. For people still in college, there are many universities and colleges that offer programs in Financial Planning. Often there are introductory courses offered to everyone as an elective. These are taught by the program faculty who are often CFP’s. Or, you can look at PACE programs offering CFP education. You do not have to go on to be a CFP or work in Financial Planning but going through the coursework will pay for itself many times over.

  • Chris Urbaniak @ deliberatechange.ca May 28, 2018, 2:49 am

    Great advice, Joe.

    That is very consistent with what I tell the students I interact with: “When you graduate, don’t go and buy a fancy car or a swanky apartment. Instead, continue living like a student for even a couple of more years and save the difference. You will be MILES ahead of your peers if you do so.”

    Depending on how keen they are, I might get into the FI discussion. But usually they’re not ready for it. If they can heed this “baby step towards FI”, it’ll buy them more time to until they are ready.

    • retirebyforty May 28, 2018, 8:49 am

      That’s a great baby step. I lived frugally for about a year. But it’s not fun living like a college student when you have some money. 🙂
      I think it’s good to learn about FI. At least, they’ll hear about the concept. They don’t have to go after FI right away.

  • Tom @ Dividends Diversify May 28, 2018, 3:50 am

    Timeless advice Joe. None of which was included in the price of that new degree. Have a nice holiday. Tom

    • retirebyforty May 28, 2018, 8:50 am

      I never learn anything about personal finance at school. That’s too bad. They should make it a requirement.
      Have a nice holiday as well.

  • Lily | The Frugal Gene May 28, 2018, 4:15 am

    Happy long memorial day weekend boss man!! Skipping out on the social pressures and stop being so sad about “your current wage” (don’t let it define your future) is my advice to…6 years ago Lily 🙂

    • retirebyforty May 28, 2018, 8:51 am

      Right. It’s just more room to grow. 🙂
      There is always someone making more money than you. Don’t be too jealous and just focus on what you can control.

  • Anita May 28, 2018, 5:43 am

    New graduates, Join your employer’s Savings Plan or start your own ASAP. And find someone who can put the financial jargon in layman’ terms so you understand the plan’s opportunities and penalties. Also get a subscription to a business magazine e.g. Fortune or Business Week to expand your knowledge on the global economy in general. Good Luck!

    • retirebyforty May 28, 2018, 8:52 am

      I forgot about this one. I’ll add it to the main post later today. Lazy day… 🙂

  • Half Life Theory May 28, 2018, 6:13 am

    Awesome post, these are things i wish i knew at twenty one. Luckily i learned in my mid to late twenties, i just imagine how much further along we could have been if you wrote this earlier Joe LOL.

    Haha, but great post as always, i hope this finds the eyes of young college graduates who really need to hear this message.

  • Pennypincher May 28, 2018, 6:38 am

    Great post! I would add-pay yourself first-by putting your savings/investing on “auto-pilot”, by having it automatically withdrawn from your paycheck. Congrats, grads!

  • steve @ familyonfire.org May 28, 2018, 7:14 am

    Good advice. I would add to run not walk to your new companies 401k plan if not auto enrolled and join at the highest level you can. Or at least make sure you get full company match.

  • Helen May 28, 2018, 7:22 am

    Joe, very good advice. For the new graduates, I recommend they start contributing to the 401K, at least to get the company match. That’s free money. And build the emergency fund.
    Forget about the long term care (LTC) insurance, some companies offer that oddly. For the folks in 20s, who cares about LTC? Happy Memorial Day!

  • Ms. Frugal Asian Finance May 28, 2018, 7:23 am

    I graduated college 9 years ago but still found your post/advice super helpful. I learned about FI only after started my frugal blog. I didn’t know FIRE was a thing. I’d make sure to spread the word and teach out kids about that in the future 😀

  • Mrs. Groovy May 28, 2018, 8:01 am

    My one piece of advice would be to accept that you are no more or no less special than anyone else. That means you don’t deserve anything and you’re not entitled to anything just because you’re “you”. Work for everything you want, and be pleasantly surprised when life hands you an opportunity.

    Hope you’re enjoying your weekend!

    • retirebyforty May 28, 2018, 9:18 pm

      That’s a great piece of advice. You aren’t entitled to anything. You’ve got to work for it.

  • Susan @ FI Ideas May 28, 2018, 8:25 am

    Advice…who listens to advice? Well, possibly these college grads might, because the sad state of huge student loan debt might have shaken their financial world at a young age. Usually we don’t look for advice until we have already made our own mistakes in the world. That’s why, when I meet a rare young person pursuing FI, it is really inspiring.

    • retirebyforty May 28, 2018, 9:19 pm

      I think you’re right about advice. People don’t want to hear it until they’re ready.

  • Doc G May 28, 2018, 8:29 am

    I would have been so far ahead if I understood FI back then. I truly got it in 2014. I was forty years old. It’s not that I would have changed so much, I just would have enjoyed myself more!

  • Jim @ Route To Retire May 28, 2018, 12:11 pm

    Boy oh boy, where were you when I graduating college?! 😉

    I would agree that learning is probably the biggest thing you can do to better your life. The other one that I think is important is to take some risks while you’re still young. It’s a little easier to fail when you don’t have a mortgage and family to support. It might not always work out, but if and when it does, the rewards can be huge.

    — Jim

    • retirebyforty May 28, 2018, 9:22 pm

      Taking risk when you’re young is a good piece of advice. When you’re older, you don’t want to take risk anymore.

  • Reverse Engineer May 28, 2018, 1:58 pm

    I started work just in time for the early 1980’s back-to-back recessions. So jobs weren’t easy to come by, and layoffs frequent, making for a very choppy early career. The silver lining for this “unlucky” scenario was never take anything for granted, and always save for a rainy day. Always had a keen interest in finances (nothing practical offered in schools of course), so researched that myself. Kept a college level standard of living for a long while to recover from those early layoff blows. So glad now, being able to retire years before peers still struggling to hang onto shaky jobs in an increasingly ageist tech field.

    I’m hoping millennials will serve as a counter example to their (especially boomer) elders to avoid consumerism and inflated lifestyles that just spring a big rat race trap.

    • retirebyforty May 28, 2018, 9:25 pm

      Thanks for sharing. I’ve been through some rough times too. The dot com bubble was pretty scary for all tech workers.
      I was lucky to hold on to my job, but I knew I had to save for the rainy days. I think Millennials are more conservative that way too.

  • Mr Crazy Kicks May 29, 2018, 6:50 am

    Some excellent advice! New graduates that start now will be way ahead of the game.

    The new car is a big one that a lot of us fall for! It’s easy to get caught up with lifestyle inflation when you get that first real job after college. My big mistake was an brand new RSX Type-S which I later sold at a $10k loss.

    Investing with basic index funds is another important one. I would have been a lot better off getting fully investing in index funds rather than trading in and out of stocks.

    • retirebyforty May 29, 2018, 8:55 pm

      Good one. We all want a nice car when we start making a little money. I took me a while to realize that a new car isn’t that important.

  • Mr. Groovy May 29, 2018, 8:27 am

    Everyday you have a certain number of hours that are yours to do with what you want. It’s what you do with these hours that will determine the arc of your life. So my advice to anyone, especially a new college graduate, is to do one of the following three things with your free time.

    Earn, learn, or show concern.

    Make money, enhance your skills, or be kind to yourself, your family, your friends, and your coworkers, and your community–do one or all of these things for a few hours every day for several years and life will be very good. It’s as simple as that.

    Oh, and read the Retire By 40 blog. It’s author, a guy named Joe, is brilliant and well-worth listening to and emulating.

    • retirebyforty May 29, 2018, 8:58 pm

      This one is great. I wasted a ton of time when I was young. I should have spent the free time more wisely. That’s tough when you work long hours in a high-pressure job, though.

  • Revanche @ A Gai Shan Life May 29, 2018, 9:39 am

    Echoing Mr. Tako – keep your own counsel about money you earned and saved, unless you explicitly know that someone can be trusted with the information about your savings, and even then, retain control over all your money.

    And my own lesson – realize that even your family, sometimes especially your family, can undermine you or cause you to lose a whole lot. Make your decisions with your eyes wide open to the consequences.

    Don’t keep paying for a mistake just because you’ve spent too much time or energy or money making that mistake in the first place. It’s ok to cut your (future) losses.

  • Marco Demaio June 17, 2018, 3:26 am

    When I read: “*I invested with my bank’s financial branch. The “free” financial advisor sold us crappy mutual funds with high fees so he could make a commission.”

    The world is a village!

    In Italy bank’s advisors sold to their customers all sort of crap:
    1) Shares of the bank itself
    2) Bonds of the bank itself (subordinated debt, not senior)
    3) Diamonds
    4) Portfolios of Mutual Funds with an average cost of 2-3% per year.

    Most people who invested in (1) and (2) got back nothing when some banks were bailed in, shares and subordinated bonds were set to zero.
    The diamond scandal came out last year, when a TV show brought some of these diamonds to local jewelers who appraised them half of the price to which banks have sold them to their customers.
    At the end of the day people who invested in (4) in Italy have been the less screwed by banks. 🙂

    I’m investing by myself since 2000, very conservative portfolio (low risk), only ETF, few bonds/stocks, most in saving accounts.
    My CAGR so far has been 2% net (in Euro, taxes already paied). In my family I’m the only one who have seen his savings grow, my parents and sister who have invested their savings following bank’s advisors, can count themselves fotunate that still have some money left in their bank accounts. 🙂

    • retirebyforty June 18, 2018, 5:10 am

      Great job. Nobody cares more about your money than you. Investing the money yourself is not that difficult these days. Index funds are available to everyone.
      Thanks for your comment.

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