This comment was left on my post titled Advice Graduates Don't Want to Hear:
hmmm... I am lucky to have a financial genius for a dad, so I got some good financial advice that I'd like to pass on. I was also fortunate enough to meet a girl in high school who I would end up marrying 7 years later. Our household income is above the national average, but is probably average given that we are both college grads and both work full time.
Here is the best of the advice that I would pass on:
(1) Have no debt that has interest rates higher than the interest rate on your savings account (tax adjusted).
(2) Save at least 10% of your income from day one. Don't think it will be easier to start saving later, it only gets harder. People aren't happy because of their absolute standard of living, but because of their relative standard of living -- how much their SOL increased or decreased from what they're used to. Start at a low "base" SOL and you can be just as happy while spending less money for your entire life.
(3) Make your car payments before you buy your car. Let's say that "Joe" plans to spend $250/month, inflation adjusted, every month for the rest of his life to make car payments. If he starts by buying a car on day one, he'll have a car loan for the rest of his life, and that money will buy him the use of a decent car for the rest of his life. If he delays his first car purchase by 3 years, he can spend the same amount of money each month forever, never be in auto-related debt, and drive a significantly nicer car forever. This principle also applies to other purchases -- delay your spending for even a year or two and you can get much more for your money. Also applies to child-related expenses -- start "paying" for them before you start trying to get pregnant.
(4) For the rest of your life, increase your SOL by less than you increase your income each year.
Good stuff!
Michael Rubin, a financial planner and author, sent me his list of the top five mistakes made by new college graduates. I would also suggest not making the mistake of waiting too long to ask for financial advice. It’s always a good idea to speak to an experienced person first instead of thinking you can figure everything out on your own.
1. Overspending on a new apartment or car. Of course they feel rich when they bring home that first paycheck or count their graduation money, but can new grads really afford those expenses month after month — especially after taxes take their bite?
2. Celebrating all summer-long. A million pounds have lifted off their shoulders and the sun is shining bright, but racking up a bunch of new consumer and credit card debt isn’t the answer.
3. Attending graduate school to avoid the “real world.” Deferring those loans and taking out new ones may sound like a good idea, but if it’s not going to help a person in their field of choice, it could be an enormous waste of money — and time — and you can’t get either of them back.
4. Not signing up for a 401(k) plan right away. Compounding interest is a beautiful thing.
5. Not taking advantage of corporate benefits like health care and long-term disability insurance. You may feel young and healthy, but accidents happen. Don’t risk a lot for a little.
Posted by: Daniel | June 27, 2007 at 10:30 AM