My Best Advice to New College Grads

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.

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 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.

Key concepts

  • 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.

Good luck!

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

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

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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53 thoughts on “My Best Advice to New College Grads”

  1. thank you for sharing your advice, if I found this 4years ago I may be a successful now. yeah, this is very true, keep learning, investing don’t let your money use for nothing, and prepare for your retirement. what ever your situation right now, it is not late to do this advice.

  2. We just never spent a lot. We are in the same house we bought 40 years ago and though we’ve remodeled and expanded it the house is still modest in comparison to the houses many of my former employees bought. Our cars were less expensive too. We just never saw the need to pay twice as much to get maybe five percent more value out of depreciating assets. We’d buy last years running and tennis shoes. Avoided name brand clothing. Cooked at home mostly rather than eating out. I think we modeled this pretty well for our three now grown millennial kids, they seem to be doing pretty well as far as living within their means. I’d just advise new graduates to not inflate their lifestyles. To take the majority of every pay increase and bonus and invest it. Sure, spend a little bit, but most of it should go into investments.

  3. Do you aim for 50% savings gross or net? I aim for 50% net monthly and sometimes it can get tight when I incur some unforeseen expenses in a month. Other months I go over (for example a bonus month) so it evens out over the year.

    “We purchased a big house, drove a BMW convertible” – to an extent, don’t you think that everyone needs to scratch that itch at some point? I’ve been delaying making a fun purchase for a while… 🙂

    My advice for those seeking colleges these days – I would shoot for minimizing tuition expenses. I think most firms now just want a degree. Often a pedigree is not needed and is more expensive. Granted, you should seek a pedigree if you want to work for Goldman.

  4. When I graduated college, I was this wide eyed fresh graduate who was so jealous and eager to be in the spot of alumni who was working really cool jobs.

    How little I knew… Financial independence certainly is the way to go. I can’t imagine doing this for decades at a time.

  5. Hard to believe it’s graduation time again. When I was growing up in Michigan you would always know it was graduation sine the cottonwood trees would release all this cotton around that time. It almost looked like snow!

  6. I wish someone would have told me to Quit soon, quit fast. If you don’t like what you are doing quit and move on to next opportunity. As a young graduate you dont have liabilities and no responsibility; its a best time to be able to take risk to find the career you like. We spend more time at work; if you hate the career and people you work with get out as fast as you can.

  7. I wish I knew about FIRE earlier as a college grad, and especially ETFs and indexing. I would be a lot more ahead if I learned about it earlier.

    I think new college grads these days are into the side hustle and the unconventional job (like gig economy). Seems like new college grads are carving their own FIRE path 🙂

    • I wish I learned about passive investing when I was 22 as well. It took so long for me to figure that out.
      Work is going to be very different when our kids graduate from college. I’m scared for them. They’ll have to be adaptable and do their best.

  8. i’ve been teaching my young graduate protege, malevolent missy, the finance ropes since she started here last fall. it’s part of a little series that really is nothing more than the basic tenets of financial independence.

    there are some non-finance things involved too with stuff like career (which i did poorly) and finding a location you really enjoy, etc. i always have thought that no matter what the job is like if you come home to a place you like it’s easier to tolerate. you know this already but you can’t beat a younger person over the head with advice, just leave the bread crumb trail and hope they pick up on it.

  9. I had both of my daughters read a general personal finance book before opening a retirement account for them while they were still in HS for the youngest/ early college for the oldest. They also learned about finance through example. The oldest is much more entrepreneurial than I expected she would be, and I think it’s because she saw us go from office to our own businesses. The youngest is very attuned with budgeting b/c of the college decisions, and the difference between private and public schools. So they were prepped before graduation so the lessons have time to sink in!

    • That’s a great move. I’m trying to teach my son about the basics too. He’s very young so it’s just the simple concept.
      I just told him yesterday that I was an engineer for 16 years. That was a long slog. Now, I’m working much less and life is great. You just need to save and invest when you’re young. Hopefully, some lessons will stick.
      It’s great that your oldest is entrepreneurial. You have to try. Good luck to both of your daughters.

  10. Good to see this and reflect on the opportunities we’ve gotten. I feel extremely lucky that my brother introduced me to the FI concept a few months after getting my first full time position.

    Prior to that I had no direction when it came to finances. I wasn’t even really that interested in it. Now, however, I don’t have as much fun with anything other than working on learning more and more about finances, especially my own. Working on my spreadsheets and reading FI blogs has just been a huge treat overall. So happy to have found it so early and even though I’m in the early stages of my wealth accumulation, I’m very confident on my path to success.

    • You’re really lucky to find out about FI early. You have a ton of time to work on it.
      You’re right about having direction. That’s why most people don’t save. Saving for retirement isn’t a good purpose when you’re 22. Keep at it!

  11. I graduated a few years before you (93). I thought I knew so much at that time but boy was I naive. Even after medical school and residency adding another 10 more years didn’t do too much for my financial acumen.

    I found the FIRE movement much later, probably when I turned 42 or so. Would have been interesting to see where I would have been had I discovered it even earlier but better late than never.

  12. 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. 🙂

    • 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.

  13. Oops. Pasted the comment into the wrong article.

    There comment for this article should say:

    “Keep on learning is great advice! I find that the more you learn the more you realize how little you know. Whereas if you stay ignorant, you end up thinking you know everything. And sometimes learning about things you have absolutely no interest in might actually be very helpful later on. I didn’t want to learn programming and only wanted to learn creative writing before going to college. But somehow the programming skills ended up being super useful when I started building websites for fellow authors in retirement AND for fixing technical issues on my blog. So no knowledge is ever wasted. “

  14. 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.

  15. 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.

    • 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.

  16. 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.

  17. 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.

    • 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.

  18. 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

  19. 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!

  20. 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.

  21. 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!

  22. 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 😀

  23. 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!

  24. 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!

  25. 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.

  26. 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!

  27. 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 🙂

  28. 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.

    • 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.

  29. 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 😉

    • 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.

  30. 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.


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