Advice To A Soon To Be College Grad

A close family friend (Burjis) whom grew up like a brother is about to graduate from college with a degree in electrical engineering (which I think right now are the highest paid graduates). He’s recently started asking me question about money, but I sensed he didn’t really didn’t know what to start asking.

Even more sad, was I didn’t know what to tell him, or even where to point him.

There’s a million and one books on the subject, but of course they’re all too long and detailed to give any practical advice which can be acted on in the next few hours (although reading them is a great way to start).

So after feeling bad that I couldn’t immediately impart any valuable knowledge, I decided to write down what personally helped me when I was ready to graduate college.

My own brother Ashdin will also be in the exact same boat in one year, so I figured this is a good time as any to give this sadly un-discussed subject a shot.

So this post is dedicated to Ashdin and Burjis:
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Just FYI:
I’m a little different in that I never started a job hunt (didn’t want to, need to or plan to), but at the age of 25 I’ve seen many close friends go through it, take jobs, and many of them regret their choices.

I can count the people I know my age who like their job on one hand, and still have several fingers left over.

So are the things that helped me most during those pre-real-world-transition years. If you want more detailed advice, go read a book (which is coincidentally tip #3).
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I think the single most valuable thing you can have near graduation is options. This means you have a sufficient amount of money in the bank to live for a while without having to immediately accept a job offer just because they’re giving you a $3,000 bonus, and you have several different good job offers. This is why people usually end up in bad jobs, because they’re desperate.

If you manage to find your dream job before you even graduate, awesome.

By all means possible, avoid being desperate once you graduate. The list below is what I think helped me attain that.

1.) Save money
Stupidly simple advice that is in the #1 spot for a reason. If you go out on the town use a flask, only pay cash for your spending (so you can phsyically see and feel how much you are spending), don’t waste money on dumb stuff, use your money wisely. Whatever it takes.

I absolutely guarantee not spending a little money now will help A LOT later. If you work an internship, immediately put 50% or more away immediately before you can spend it. Let your friends spend $100+ several nights a week at the bar…good for them….your eye is on a bigger goal.

2.) Split up your bank accounts
It’s free and is possibly the greatest financial move I ever made, and you can do it online or at the bank in 15 minutes. Seriously, do it right now. It gives you a MASSIVELY better idea of how much money you can allocate to certain activities.

Do this anyway you like, but what I did in college was:

  1. General bank account: All money earned went into this account and was then distributed to the sub-accounts.
  2. Savings account: I didn’t know what I was saving for, but this proved to be amazingly valuable. When this account gets too big, I max out my Roth IRA with it.
  3. Spending Account 1: Going out, seeing a movie, having fun etc all came from this account. 10% of income was allocated here.
  4. Spending Account 2: I put 10% of my income to this account per month. This account strictly used for vacations and holiday spending (since buying gifts and going out during the holidays puts a strain on Spending Account #1).
  5. Investment Account: 30% of my money went here. This was money that could be used on anything that would help make money or continue my education.
  6. Bills account: 30% of my income went to this account. Paying rent, buying groceries (minus alcohol purchases or supplies for a party), gas, bills, insurance costs, phone bill etc. were all paid from this account.
  7. ROTH IRA: I opened one with Ameritrade even though I didn’t really know what the hell it was at the time. I just knew I needed it. It’s free and easy to open, and you can read a thousand books on how to squander the money in there. Point is, just open one now and learn about it later.
  8. Whatever you want: Open accounts that help you save for a cause like a ‘car account’ or ‘buying a condo in two years’ account. I opened many more, but the aforementioned 6 are the ones that helped kick it all off.

You probably won’t open this many accounts right away, but AT LEAST have 3 separate accounts for now.

3.) Read (about financial stuff)
Go to the public library (don’t bother actually buying these books) and start picking out books about personal spending. Go through at least two of these a month and you’ll start learning a wealth of different financial techniques and simple tricks. I’d say about 20% of what’s in these books is useful (and you’re both smart kids so you’ll know which 20%).

They mainly preach the same things, but they often throw in random gems of information. For example, I read the book “The Automatic Millionaire” which could’ve basically been summarized to this sentence: Setup your bank accounts to automatically transfer money to your savings accounts every month. Book done.

Read the stories, get inspired, learn from each book. I heard Jerry Seinfeld talking about all the books and classes he’d taken say, “I view all these things like supermarkets. I go into them, take what I need, then leave.”

I can’t stress how important it is to educate yourself on these financial matters. It’s enjoyable and will make your life a whole lot easier.

4.) The Investment Account
I liked experimenting with different small business ideas in college, so I create the Investment Account so I could use that coffer of money for anything I deemed would improve my understanding of something, satisfy my curiosity, educate me or make me money (primarily the last one).

I put a full 30% of my income into this account. In the past I have used it for piano lessons, guitar lessons, books, weird musical instruments, buying a tuxedo to crash parties in, making trips for business purposes and various money experiments for this blog.

Freely spend this account when needed. Investing back in yourself is absolutely imperative…and you’ve often gotta have money for it. I feel this particular account was a great help during those years.

5.) Have Job Options
Since I’ve never had a real job don’t take one bit of this advice…but hear me out:

Want to do electronics research…or maybe environmental design? Make sure you’re in the right place. Don’t be fooled by euphemistic job titles which sound cool but mean nothing. The term “Analyst” comes to mind.

The people I know who enjoy their jobs and learn the most from them are the people who made absolutely damn sure they get to do what they want on the job.

What I mean is they properly planned out the type of work environment they liked, what type of talents they’d like to develop, what industry they’d like to learn, and what type of work is the most intellectually stimulating to them. They then sought out companies which could offer this.

How could they do this? Because they had options. They had enough money to live for a while without having to take the first opportunity that gave them a starting bonus just so they could pay rent.

Oddly enough, these people were usually the FIRST to find great jobs and have offers thrown at them! I guess there’s something about a confident applicant who knows what he wants.

If the company gives you an offer you don’t like, you can tell them to, “Take this job and shove it” (of course never say that out loud…no matter how hilarious and satisfying it may be)! Your work will take up over 60% of your waking hours, you might as well get something worthwhile out of that time besides a check.

Don’t get ‘having options’ confused with laziness. The friends I see in good positions were also the friends who went to the MOST interviews and wisely and respectfully played company offers off each other.

…but I’ve never had a real job, so please don’t listen to me.

Good luck both of you, not that you need it.
-Neville

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In the comments anyone can impart their own advice to these young 20-somethings who are about to enter the working world. What worked for you? What didn’t work? If you could do it all over again, what would you have done?

Experienced advice is likely far greater than mine.

Blog posted on: August 13, 2008

22 comments on “Advice To A Soon To Be College Grad

  1. Khyron

    #1 and #2 are crucial. Agreed. I don’t know that that many accounts are needed, but hey, whatever works. I’d probably use the Roth IRA as a “save for a house” fund too, since the contributions can be withdrawn w/o penalty before retirement. (I have a personal story about this if anyone wants specifics.)

    The Roth IRA + “whatever you want” account merger means you can accumulate funds faster. Once I move to my new apartment, I should be able to get back to 15% – 20% net (after tax) savings per month. I think I’ve already paid for my big trip next year with money I’ve saved since the end of June.

    If you do get a job, and they offer a 401(k), use it. AJC @ http://7million7years.com/ is against it, but you have to do what works for you, and work the hell out of that strategy. I like mine because its the one saving grace that reduces my taxes. Soon, I plan not to even worry about that, but still, I get it where I can. I use the 401(k) for other reasons too (tax diversification, the match, etc.). Be smart about it. There’s plenty of advice about maximizing the 401(k) out there, so soak it up! I won’t automatically say “do it!” because its very context sensitive, like everything else, but understand the upsides and downsides and do what works for YOU. I only started mine back in 2004, at age 29, since I realized I wasn’t leaving my gig anytime soon and hadn’t accumulated much in savings. (That gets to CLARITY which I speak about later, though.)

    Learn. Investing in yourself is a good one that I probably overlooked for myself at that age (and currently). As for finance, economics, and investing, consume as much knowledge as possible. It takes time to assimilate and understand it, but consume it. You can’t afford not to. I know some may laugh or even try to discredit this, but had I actually started ACTING on some of the things I read about in Charles J. Given’s “Wealth Without Risk” back in my late teens, I’d be retired now. I find myself looking at these strategies 15+ years later, and they aren’t hard. Not all of them suit me, and they won’t all suit anyone, and not EVERYTHING in the book is golden, but enough is that I recommend reading it. His next book, “Financial Self-Defense” wasn’t as good but still had some gems too. Say what you will about the man, if you apply some of his advice, it will make a difference. The personal finance stuff is not bad for a 20+ year old book, and the investing stuff is reasonable too esp. his different approaches to real estate. Take what works for you and leave the rest.

    NOTE: That link above is an Amazon affiliate link. If you click and buy, I get a cookie around 2014. I hope I’m not violating Nev’s rules but I didn’t see the point in not including it.

    Having options is the best advice. I tell (told?) all of my students this. Even if you didn’t like the company, even if you knew you wanted to do something different, talk to them. Its networking. Find out more about what they do. Have the OPTION. So your advice here is on point, IMO, Nev.

    As for the job, love what you do. I love my job, although I don’t really like whom I do it for, and I would continue doing it in retirement. I think this attitude helped me get as far as I did as quickly as I did. (Had some help from the Dot Com Boom too, admittedly.) I did this for almost no money in college, so it still awes me that I get paid for it. You have to be clear about your values in this arena, though. My biggest job mistake was staying in a job I hated because it was “safe” (and I’m still there after 6 years). I should have been onto a new adventure a long time ago. Being employed is riskier than having a business (or some sort) in many ways.

    (More thoughts on this at http://7million7years.com/ which I’m sure Nev can appreciate.)

    Clarity. Obtain it and use it in all aspects of life. Make a decision, commit to it, and follow through. Whatever it takes, have clarity. Clarity will make the goals easier to dedicate yourself to. I’ve noticed that I spin my wheels, losing time, when I lack clarity. Now that I have clarity in my fitness goals (for example), I exercise 5 days per week and have almost achieved one of my goals in about 3 months.

    That’s probably all I have for now. I’m supposed to be sleeping!

    Oh, yeah! Don’t be desperate! 2nd best piece of advice in this post. It will lead to bad decisions, most assuredly.

    P.S.: I blog at AlphaGuy wherein I sometimes write posts as lucid as this comment.

    Reply
  2. Slim

    Good post Nev.

    I think the key is discipline. Whether its saving money, moving up in the company, losing weight, learning a new skill, or whatever. Anything that you want to do better requires discipline.

    A few good books I’d recommend are “The Millionaire Next Door”, “Rhinoceros Success”, “The Go-Getter”, and “The Monk and The Merchant”.

    Reply
  3. S

    Great post Nev! The information was very useful and I hope you have more posts like this. A good book to read would be the Bogglehead’s Guide to Investing.

    Reply
  4. Neville

    Good book rec’s, and AlphaGuy, nice comment! I’ve never seen a comment longer than the original post :-)

    Reply
  5. 7million7years.com

    “If you do get a job, and they offer a 401(k), use it. AJC @ http://7million7years.com/ is against it”

    I appreciate the references Khyron but this comment is not strictly true: I am FOR investing rather than saving and the 401K may NOT necessarily be the BEST place to invest (it may be for you … but, run the numbers).

    Reply
  6. Anonymous

    One of the best things to do as a college student is what Nev did…. start businesses and experiment with money.

    Money and business are fraught with emotion. Get over it. Don’t be afraid or awed.

    The best way to do this is to “play” with money. Nev’s 30% of his income was for this. This trick, more than all the others, is what probably gave him the ability to excel.

    You need to be able to recognize and develop opportunities. The only way to do that is to try and fail many times. The best time to try and fail is when you are young and the consequences are minimal.

    For example, I think all parents should forbid their High School age children from taking low end part-time jobs at Denny’s or MacDonald’s. Those jobs only teaches them to obey the rules (and that middle management makes people sadistic and bitter).

    Instead they should force their children to make their own money using their wits and/or brawn. Make them come up with a value proposition that will cause strangers to part with their money. THAT will teach empathy and awareness of others much faster than any other way. (Also they don’t have to wait until 16 years old to do this. There is no age minimum for entrepreneurship.)

    Wow, how much better off the child would be doing this, than by having the “guaranteed” income from a “good” job. And what’s the downside if the child fails. No new IPod this summer? Boo Hoo.

    (Obviously, things change in the situation where the child must contribute to the family’s finances. But I stand by my reasoning that, in the long run, the child and the family will be better off if the child learns how to create wealth rather than trade time for money.)

    I wish I had been more daring just out of college. I wish I didn’t play it safe. But I had debt, and was afraid to miss a payment. So that was my first mistake – debt.

    Good luck!

    Reply
  7. Anonymous

    Hey, I was wondering what bank you use? I ask becuase I am interested in setting up different accounts for different uses. Since you have so many checking account do they each have their own debit card and their own check books? how do you keep track of all the cards? thanks.

    Reply
  8. Anonymous

    Hey, I was wondering what bank you use? I ask becuase I am interested in setting up different accounts for different uses. Since you have so many checking account do they each have their own debit card and their own check books? how do you keep track of all the cards? thanks.

    Reply
  9. Moneymonk

    I'm for 2 accounts

    Savings and a Roth IRA <- this can also double as a house fund or a car fund

    Also contribute to your 401k (up to the match)

    Reply
  10. Benjamin

    One of the smartest financial moves that I ever made was enrolling in my company’s 401k program as soon as I was eligible.

    If your company does not offer a 401k or similar retirement plan, you’ll want to open either a ROTH or Traditional IRA.

    The longer you wait, the harder it will be to start having additional money withheld from your paycheck when you finally decide to start saving.

    Reply
  11. Anonymous

    1. Fund your 401k at least 10%. If you can’t afford that, then reassess and make it work.

    2. Buy a house when you are ready and can afford it. According to real estate agents, it’s always a great time to buy or sell.

    3. Do not marry a woman who is bad with money. If you date one, then reform before getting married.

    She should also be willing to prenup. Saying a prenup means you plan for a divorce is like saying life insurance is planning to die.

    4. Get Long-Term Disability Insurance.

    5. Get Life Insurance. If you are single and/or have no dependents, then at least get enough to cover your burial.

    5. Take one planned vacation lasting at least 5 days every year.

    6. Maximize your earning potential and power at all times. Remember, you may work at a company but you work for yourself.

    Reply
  12. Anonymous

    A matching 401k is the way to go. Put in at least up to the matching point. Then do a Roth IRA. Even seeking the advice of a financial advisor is a good way to go. They cost less than what some people may think.

    As for a pre-nup, it only really makes sense if one party is going into the marriage with a lot more than the other party. If you’re both on level ground, it won’t really do anything for you. And even the best pre-nups can be challenged in court.

    But I agree, don’t marry anyone who is bad with money in the first place. It toally sank my wife’s brother financially.

    Reply
  13. Brent

    great post
    but i really want to know what is the difference between have two or three accounts one for savings one for checking and one for investments.
    what value added does one account for vacation, movies and other such things do.

    Reply
  14. luckeyfrog

    I’ve always thought it makes a lot of sense to have multiple accounts, particularly for extra spending vs. savings/retirement vs. bills.

    That way, you set aside how much you SHOULD, instead of looking in your bank account and feeling like you can spend a lot more.

    I have a friend who says that his bills are variable, so he picks a value slightly higher than they ever seem to get, and counts on paying that amount for utilities every month. After awhile, those few extra dollars from each utility build up in the account, and he can transfer that to another fund. It makes a lot of sense to me.

    My mom’s also always had an ‘emergency fund’ that comes in real handy when the air conditioner suddenly breaks, or the car stops working.

    Reply
  15. linda

    haha the roth ira… ug
    i openned one finally this year but i have no idea what to do with it. it’s just.. sitting there.

    Reply
  16. Khyron

    Linda (and anyone else who might be interested):

    Might I recommend the service that I use for my ancillary investment/retirement accounts…

    http://invivoanalytics.com/portfolio-strategy/

    I’m not saying you need to do what I’ve done, which is pay for an annual subscription to the InVivo portfolio strategy. However, Invivo has model portfolios for every type of retirement account usage.

    The US Conservative Retirement Portfolio, for example, is designed to be implemented as a base portfolio inside of an employer defined contribution plan (like a 401(k) or 403(b)). All of the Core Portfolios are designed as base, capital preservation portfolios for such use. So if you’re a US govt. employee, they have a Core Portfolio you can implement inside your TSP.

    The Satellite Portfolios are designed for non-employer retirement or brokerage/trading accounts. I use the Strategic Performance Portfolio inside my brokerage account, as I plan to do more esoteric things inside my Roth IRA. This is the service I paid for. I’d recommend reading through the InVivo site, esp. the series Teresa did on building your own investment portfolio.

    You don’t have to pay for access to the InVivo portfolios. I only mention them because they make a lot of sense. Teresa explains the thought process at work in that series, and very well. I was on the fence for a while, because I read the series and determined that I was going to use her model portfolio, but I didn’t know what asset allocations to use. Then I just bit the bullet and paid for it, and let HER figure that out using all of the resources at her disposal. (The portfolios rebalance weekly too.) I’d rather spend my time on other endeavors; figuring out the perfect asset allocation once was taking long enough; on a weekly basis, it was impossible. (I rebalance my 401(k) about monthly so I am totally on board with her rebalancing philosophy.) What you do pay for is the weekly rebalancing advice, access to Teresa (she’s very good about checking e-mail), and the forums and other resources wherein there is lots of good discussion about building and managing investment portfolios.

    Anon:

    “According to real estate agents…”? Did you REALLY say that?

    Slim:

    Totally get the point about discipline. It is CRUCIAL. However, I think clarity must be obtained first, because without clarity, it is very easy to be disciplined about doing the things which do not support your goal(s). Having clarity also makes it easier to be disciplined about doing the things required to support the achievement of your goal(s). The clarity helps you determine where you want to spend your energy and time, and should motivate and inspire you to be disciplined about achieving those goals that move and inspire you. Don’t underestimate the importance of being CLEAR as to WHY you are being so disciplined.

    Reply
  17. wstreetis4lovers

    I’m graduating in a year and freaking out. Today is actually my first day of senior year.

    Im realizing how crucial saving will be this year. The last thing I want to do is take some stupid job because I was broke.

    Splitting accounts is a great idea. I def need to start an investment account considering thats what I want to go into..at least at this point in my life.

    Thanks for the advice!

    Reply
  18. MoneyEnergy

    All of these are good points (the one about making sure your future wife isn’t bad with money should be extended to making sure your wife *or husband* isn’t bad with money).

    What I think helped me most was definitely (1) reading great inspiring financial books and (2) starting free dividend reinvestment plans. Seriously, I think those are the best way to bootstrap your investments starting from scratch.

    I don’t have the same business experience though, so maybe I should have learned more about that.

    Reply

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