This one is for the new college grads out there. Congratulations! Graduating from college is a huge accomplishment. Now, it’s time to rock the world! I graduated over 25 years ago and I still remember it well. I was euphoric to finish 5 years of engineering school. It was a tough program (BS/MS combined). By the end, everyone was totally 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.
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 need to save the rainy days. By the time I found out about financial independence, we were almost there.
The rainy days came when I realized I didn’t want to be an engineer anymore. The career wasn’t the right fit for me anymore and I needed to move on. We saved and invested for a long time so I had to tough it out for just 2 more years. After that, I was able to retire early and escape from the corporate grind. Thank goodness I knew about financial independence by then. If I didn’t, I’d still be an engineer. Whew! It would have been better if I learned about financial independence 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 would have learned to invest much earlier.
*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 them. Once you learn more about investing, you can branch out and invest in individual stocks and other assets. Don’t invest with a “free” financial advisor at the bank. They’re about as bad as used car salesmen, IMO.
What is financial independence?
Basically, financial independence is when your investment can cover your cost of living while you’re alive. 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 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. You just have to keep an open mind and keep learning. 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 financially independent. I recommend aiming for 50% saving rate. That will help build your portfolio very quickly. If you can’t save 50% right from the start, don’t worry. Just do your best and keep improving every year.
- Lifestyle inflation – New college grads usually have high lifestyle inflation. When you make more money, you tend to spend more too. This is dangerous because it will screw up your saving rate. New grads should be very careful about upgrading their lifestyle too quickly.
- Investing – If you start investing while you’re young, you’ll be way ahead of everyone else. Time is your friend when you’re young. You can benefit from compound interest and learn about investing from experience. It’ll be much more difficult to start investing when you’re 40.
- Safe withdrawal rate – This is one way to define financial independence. It will give you a number to shoot for.
- 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 critical. Most people have no idea what they spend money on. Tracking your expenses will help you figure out what you spend your money on. Do this for at least a few months. Once you understand your spending pattern, you can improve it. Then you don’t have to track every penny after that.
- FIRE blogs – There are many great resources on financial independence now. Here is my list of great FIRE blogs to get you started.
Alright, I’ll keep it short today. It is almost summer and I’m cutting way back on work (blogging.) This summer, I’ll work 10-15 hours per week and focus on being a SAHD the rest of the time. We have to enjoy the journey, right?
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 be 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 inside your head 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 financially 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.
46 Habits of Self-Made Millionaire – This is a great post from Dividend Diversify. Adopt some of these habits and you’ll be a millionaire.
Image credit: Charles DeLoye
Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!
Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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