To the Graduating Class of 2020:
Updated: Aug 31, 2020
Who would have thought that you’d complete your education in the midst of a global pandemic? But you did it, so congratulations on overcoming the obstacles and uncertainty! As you move forward into the grand world of adulthood, I’d like to offer you some advice.
You are standing at a financial fork in the road, so to speak. The decisions that you make in your late teens and early 20s can have a tremendous impact on your future! Let the decisions you make while you are still young set you up for a more peaceful financial future. Otherwise you might be paying for your mistakes for years to come... literally.
Here are 12 pieces of advice that could truly impact your future!
1. Always live on less than you make. When you spend less than you earn, you won’t spend all of your time and energy playing catch up down the road. Basic math tells us that if you make $500 a week but spend $600, you are in the red. If you overspend like that every week, you'd be more than $5,000 in debt at the end of the year.
When you spend less than you earn, you have some left over for saving and investing in your future rather than constantly paying for your past. Living below your means is a simple piece of financial advice… but it isn’t always easy to follow. Many have this notion that once they make more money they will be better able to follow this advice. Wrong. It's a behavior issue, not an income issue. Develop the habit now of living on less than you make and your future self will thank you!
2. Pay Yourself First. If you don’t have a savings account yet, go open one... then start saving money. Pay yourself before you start paying bills and spending on other needs and wants. If all you can save this month is $10, save it. One of the best things I did early on was to schedule an automatic transfer from my checking account to my savings account. Money was transferred from my checking to my savings on the 15th of every month, which was the day I got paid. Setting up an automatic savings transfer helped get rid of the excuses I sometimes made to avoid saving. Just ask an employee at your bank about setting this up! You will NEVER regret having some money stashed away in an emergency fund. It will give you peace of mind and something to fall back on when the unexpected happens.
3. A credit card is like a chainsaw - if it is used carefully and wisely, no one gets hurt. If you use it recklessly without understanding how dangerous it can be, you may end up getting badly hurt. Never get into a habit of swiping a credit card. Be VERY careful. If you aren’t financially disciplined, you should just avoid having one altogether. Better to be safe than sorry.
4. Don't let payments become a way of life. If you want a new iPhone, save up for it and then buy it outright. If you want new living room furniture or a new fall wardrobe, save your money and then buy those things outright. Be mature with spending decisions and be PATIENT enough to save up and pay cash for most items. I'll admit it - this is difficult sometimes but it CAN be done. Constantly making payments on everything means you are handing your money over to a lender who has charged interest --- making the lender even wealthier rather than building your own wealth.
5. Check out the EveryDollar app. It is an excellent, user-friendly budget tool that was a game changer for us! By creating a zero based budget within this app, you will really start to notice where your money is being spent. As John Maxwell once advised, learn to tell your money where to go instead of wondering where it all went. When we first started using the app, we were shocked at how much money we were spending eating out. That realization made us reevaluate our spending because it hit us how much money we could be using to pay off our vehicle debt. When you use this app, it will encourage you to be more intentional with money.
6. Invest wisely - either get an investment advisor or invest on your own through an online brokerage if you understand how the market works. If you choose to seek the help of an investment advisor, it is very important to find one who you trust and who will explain things to you like a teacher would.
Only invest money that is "extra” - not money that you need to live on
You should only invest after you’ve paid off all debt (except for your home mortgage). Some people may disagree with this one, and I understand why they disagree. However, getting rid of debt is the name of the game, not to mention the fact that high-interest debt can essentially cancel out any gains made while investing.
Don’t think you are going to make bank by investing in the latest, trendiest thing (not saying it can’t happen, just be very cautious).
Slow and steady wins the race when it comes to most investing. Invest for the long term!
Good mutual funds can also be a great tool for long term investors who want built in diversification and lower risk.
Pay attention to fees when investing.
Never invest if you don’t understand what you are doing or what you are investing in.
You can learn a lot about investing from various sources - read books, YouTube videos, follow people that have years of experience, etc.
7. Instead of spending all of your hard earned money on things that will eventually be put into a yard sale pile or a donation bin, remember that creating memories and sharing experiences with loved ones should be a priority. There is nothing wrong with having some nice things, but at the end of the day, quality time spent with those you love matters way more than stuff.
8. It is very possible to do life successfully without a credit score. It’s unconventional but doable for people who want to avoid debt at all costs. However, most people choose to maintain a credit score so I am advising from that perspective. There are several options for building a good credit score; they all require that you take on a loan of some form. The important part is making your payments ON TIME for that personal loan or credit card. If you want to play it very safe - look into a secured credit card. Also, look up the 5 components of a FICO credit score - read and learn.
9. College/university students - Just say NO to student loans… and if my advice is too late for your first year, make a different decision in year two. It seems like free money, but it isn’t. You will be strapped by debt in your 20s and 30s if you aren’t careful. You will NOT want student loan debt hanging around your neck after you graduate - TRUST ME!
(Click here for more of my thoughts on Student Loans)
10. Live with open hands, not tightly closed fists. Be generous. Even if you can’t offer much, offer when you can. Whether it's helping a family member or friend who is in a tough spot or by contributing to causes you believe in, be a giver. One thing Dave Ramsey speaks about often - it’s really hard to help others when you have nothing left over simply because you don't manage the money you do have well. (If you are a Christ follower, I believe we are called to be generous as a reflection of the kindness and goodness of the One we serve.)
11. Check out The Dave Ramsey Show! We learned so much just by listening to this podcast while driving. Listening to Dave Ramsey answer questions from the folks who call in is both entertaining and informative. This podcast has had a lasting impact on our financial lives!
12. Once you have a steady job... If your employer doesn’t offer a 401(K), open your own retirement account (IRA). Retirement may seem like it’s far away, but time flies! Retirement will sneak up on you if you haven’t been intentional about setting money aside for that season of life. You want the freedom to choose what to do with your time when you get into your mid-60s. Once you start contributing money, don’t touch it! Let your money grow over time with the power of compound interest!
Look into opening a Roth IRA! Tax free growth!!
And finally - Money is just money. I can think of lots of things that matter WAY more in life, but trust me when I say this: Your life will be less stressful if you get into the habit of making wise choices with your money while you are still young.
Best wishes as you embark on your next adventure!