Here at Mom and Dad Money, my mission is to help new parents take control of their money so they can take care of their families.
If you’re a new college graduate, chances are you aren’t a parent. So, why am I writing to you?
Well, first of all, I’m not that much older than you (I’m 31). So I was in your shoes not too long ago and I know how confusing it can be trying to find your way. I was lucky enough to get some fantastic financial advice early on and I’d like to help you get the same kind of guidance.
Second, there are two main reasons I care so much about personal finance and you play an important role in both:
- I believe that taking control of your financial situation is the most powerful way to create the freedom you need to pursue a life that makes you happy.
- I believe that society at large will be better, happier, friendlier, and more productive when more people are in control of their money.
Plus, in all likelihood you will be a parent someday. Maybe not soon, but getting a handle on your financial situation now puts you in a better position to not only enjoy yourself today, but to take care of your family when the time comes.
So with that, here’s my financial advice for new college grads.
1. Enjoy yourself
Money is supposed to be used in the pursuit of happiness. Don’t let anyone tell you differently.
While you should absolutely learn how to be responsible with your money (and we’ll cover plenty of that below), I would highly encourage you to find ways to spend your money on things that bring you joy.
So, how can you do that? Well, research has shown that we cherish unique experiences much more than material possessions, so if you really want to be happy you should consider skipping the newest iPhone and spending that money doing fun things with people you care about instead.
Here are a few things my savings allowed me to do in my early 20s, each of which are experiences I’ll remember forever:
- Fly my soon-to-be girlfriend, and now wife, Casey up from Florida to Boston so we could go skiing for our first date (we had met in New Orleans a few weeks earlier).
- Make a last-minute decision to buy tickets for the Duke-Butler college basketball national championship game and road trip from Boston to Indianapolis with one of my best friends. Over the course of 48 hours we spent 30 hours driving, 3 hours at the game, and every second loving it. Oh, and I learned how to drive stick on the way.
- Fly to California to spend a week with friends on the beach and make my first, and so far only, trip to Vegas.
Be responsible, but not too responsible. Remember to enjoy yourself too.
2. Pursue meaningful work that pays enough
Too may people spend too much time in jobs they don’t like either because they need the paycheck or because they never made the effort to find something better.
Don’t let that be you.
Work in pursuit of something you care about is one of the most enjoyable and fulfilling ways you can spend your time. And when you consider that you’ll likely be working in some capacity for multiple decades, shouldn’t you do everything you can to make sure that it’s worthwhile?
Of course, it’s almost impossible to know what you care about right away. I didn’t start this business until I was 6+ years out of college, and even now I’m always tinkering with different ways to make sure I’m doing the work that really matters.
You have to explore the world, try things out, fail, make a little progress, fail again, and repeat that same process over and over before you can really find your groove.
It’s not easy, but it’s much better than the alternative of settling for something you hate. Or even worse, something you can stand just enough to not feel the urgent need for change.
You also have to make money, though maybe not quite as much as you think. Money allows you to pay your bills, save for the future, and enjoy yourself in the meantime. So while finding meaningful work should be the primary goal, earning enough for you to pay for the rest of your life is important too.
Here are a few resources I’ve found helpful in my own pursuit of meaningful work that pays enough:
3. Keep tabs on what you actually care about
There’s a lot of conventional wisdom about the path you’re “supposed” to take post-college. It looks different for each person depending on the specifics of their situation, but mine looked something like this:
- Get a job
- Move out on my own into the city
- Get a girlfriend and eventually get married
- Buy a house
- Have kids
- Keep working my way up in my chosen industry
- Live in an upper middle class suburb
- Enjoy a week or two of vacation each year somewhere warm and sunny or cold and ski-y
- Send my kids to private colleges
- Retire at 65
None of that is inherently bad, and in fact I’ve taken plenty of those steps already. But how many of them had I purposefully decided I wanted for myself?
If you’re not careful, it’s very easy to live your life according to other people’s rules. And while that’s not necessarily a path to misery (though it can be), it’s almost certainly not a path to true happiness.
The sooner you start being intentional about what you want and making decisions based on your own unique set of goals and values, the sooner you’ll be in control of both your financial situation and your life path.
Here’s a process that will help you think about what you really want from your life: 6 Steps Towards Creating Your Ideal Life.
I would encourage you to work through it now, and again at least once every year. Your goals and values will change over time and this will help ensure that your financial priorities change along with them.
4. Avoid debt at all costs
As my friend Jim Collins likes to say: “Carrying debt is as appealing as being covered with leeches, and has much the same effect.”
More than anything else, personal finance is about creating the freedom to pursue whatever life path excites you the most. And debt is the quickest way to destroy that freedom.
Debt forces dependence on your next paycheck so that you have enough to make your minimum payment. Debt pays other people the interest that you could be earning yourself to finance your own freedom. Debt is the opposite of wealth.
That doesn’t mean that you should feel guilty about any debt you already have. You shouldn’t. What’s done is done and it’s time to move on.
But it does mean two important things.
First, you should stop taking on debt. No more credit card debt. No car loans. No big mortgage, and likely no mortgage at all for the time being.
Second, it means you need to make a plan to pay off your existing debt as quickly as possible. If you have student loans, you can click here to get my Student Loan Toolkit.
The sooner your debt is gone, the sooner you’ll have the freedom to pursue the life you really want.
5. Track your spending
I’m not going to tell you to make a budget. Honestly, I don’t even use a traditional budget myself.
But you should absolutely be tracking your spending.
It’s not to restrict yourself or create limits. It’s simply to build an understanding of where your money is going so that you can make purposeful decisions about where you WANT it to go.
In other words, it’s a way to take control of your money rather than letting it control you.
Here’s how I would do it:
- Sign up for a service like mint.com or YNAB
- Link your accounts
- Set a calendar reminder once per week to log in and categorize your spending from the past week
- Set a calendar reminder once per month to log in and review your spending from the past month AND the past 3 months
That’s it! If you follow those simple steps I guarantee you’ll have a better handle on your money than 99% of your friends.
If you’d like more detailed guidance on this, here’s my step-by-step process: How I Track My Spending.
6. Put half of every raise into savings
As you track your spending, make sure that you’re spending less than you earn. Depending on your income you may not be able to save much right now, but you can definitely ensure that you’re not piling up debt by spending more money than you have.
Over time though your income will likely increase. Especially if you’re working hard on #2 above.
The temptation will be to increase your lifestyle as you go along, and you can certainly do that to an extent.
But if you REALLY want to get ahead, make a pledge right now to dedicate 50% of every raise to savings. Write it down, sign and date it, put it somewhere safe, and pull it out any time your income increases.
There’s nothing more important to your long-term wealth than your savings rate. This simple practice will ensure that it’s always increasing.
7. Automate your savings
While you’re in the savings mindset, whenever you have extra money to save each month you should make it automatic.
You can do this with your employer retirement plan by having contributions taken directly from your paycheck (more on this below).
You can also do it with savings accounts, IRAs, and other investment accounts by linking them to your checking account and setting up transactions that automatically transfer the same amount of money to the same accounts on the same days every single month.
If you asked me for the one tactic that’s increased my personal savings more than anything else, this is it. The consistent progress month after month leads to some pretty amazing results.
8. Put money into a savings account
Yes, savings accounts are boring. They won’t make you rich and they certainly aren’t going to get you a boyfriend or girlfriend (though if they do, hold onto that person for life!).
But a savings account WILL do two awesome things for you.
First, you’ll have money available to handle unexpected expenses without resorting to debt.
Second, you’ll have money available to take advantage of exciting opportunities that come your way. That could be something like a last-minute trip to see a friend, or it could be the chance to start your dream business.
In other words, having cash in savings gives you the freedom to make the choices you want to make without the risk that those choices will put you in a bad spot.
9. Take the full employer match
If your employer offers a match on contributions to your company retirement plan, make sure you contribute enough to get that full match.
It’s free money and it’s the best return on investment you’ll find anywhere. It’s also the easiest way to get started investing.
Speaking of which…
10. Get started investing
Investing is one of the best ways to grow your savings and create your financial independence. Unfortunately, it’s also one of the most misunderstood financial topics, and therefore the cause of a lot of unnecessary stress, anxiety, and lost money.
You may not have a lot of money to invest yet, but you can absolutely get started learning the basic principles and putting them in place in bits and pieces. Your company retirement plan is a great place to start, as is an IRA if you have some extra money to save.
So, how do you learn the basic principles of investing? I would start with these two articles and go from there:
And if you really want start-to-finish guidance, here it is: Investing Made Simple.
11. Invest in yourself
Investing isn’t just about retirement accounts and mutual funds. Investing is about creating more opportunities for yourself in all areas of your life, and what better way to do that than to invest in yourself?
So, what does it mean to invest in yourself? There are an infinite number of ways to do it, but here are some examples:
- Taking a class that improves a core skill that will make you better at the work you want to do
- Learning how to cook
- Staying fit
- Spending time with the people you care most about and want in your life for the long term
Your greatest financial asset is your future earning potential. And your greatest personal asset is your ability to skillfully pursue the life you want.
Continually investing in your own development will open up more opportunities for both, making it easier to create a life that makes you happy.
What about you?
If you’re a new college grad yourself, what financial moves do you see as most important? What questions do you have about making good financial decisions?
And if you’re further along in your financial journey, what advice would you like to pass on to recent college graduates?
Share your thoughts in the comments below. We’d all love to hear them!