Ah, the college days, aren’t those the days to remember? Pulling “all nighters”, going from class to a part-time job and vice versa, eating free pizzas or having the munchies at 2 a.m. on a Thursday night–these were all part of my college experience.
Then after surviving college comes graduation day–it’s like a wedding that seals the deal and you now have a ticket to a better life and a job with better pay. But there are key things that no one might have taught you along the way.
I don’t live with regrets, but just for this one time, if I could go back in time to May of 2000, my graduation month, and give some advice to myself, I wish I could tell that undergrad the following: Hey buddy, it’s me, I mean it’s you from the future. You’ve always try to be obedient, so listen to me now and go against the herd, follow these rules to get a great life.
1. Keep housing costs down
Now that you have graduated from college you have to watch out for lifestyle inflation. If you don’t, you’ll increase your spending as your income goes up and it will be harder to save or get out of debt. Ultimately, you’ll be stuck in a rat race just to pay the bills until you’re old, fragile and can barely move, let alone explore the world through travel.
You’ll no longer be a broke college student, and with a bigger income, will come greater responsibilities. (Yes, Spiderman will make a comeback!) You’ll have a decent job and you’ll be tempted to buy houses and spend more on things that you’ve been deprived of.
And yes, it’s okay for you to splurge once in a while and celebrate the milestones, but keeping life simple at this point is more important than ever. Every dollar that you can save at a younger age has the potential to grow for many decades to come.
Instead of moving out on your own, try living with your parents for as long as possible. Now that you appreciate them more as an adult, why not try to minimize expenses and spend more quality time with them while you’re at it?
If living with them is not feasible because of location you can also try living with roommates.
Once you find that great job, continue to keep your life simple. Don’t be a fool by falling into the American Dream trap. Buy only as much housing as you need and you’ll get to financial independence sooner. Don’t ask me what that is, just continue to keep the simple life and housing costs down for as long as possible after college. I don’t want to spoil the surprises that are coming your way.
2. Minimize transportation costs
Unfortunately, you won’t be able to rely on public transportation to commute to your first job. Since you were broke while in college and didn’t save much, you just won’t have enough money sitting in a bank account to buy a car. You’ll end up borrowing money.
Only borrow the least amount possible to buy a used car, and most importantly, pay it off right away!
Try not to borrow for your second vehicle. Save enough to buy it in cash and, always buy used. Don’t be a fool by falling for the new car smell and upgrading every four years. A new car will leave 20% of its value at the dealership the minute you drive it off the lot.
Some might tell you that you’re better off getting a low interest loan and investing the funds.
Here’s why you should go the cash route:
a) A car is an expense, not an investment, a depreciating asset at best. It shouldn’t be a part of your investment strategy. Pay for it cash and be done with it.
You’ll feel good to know that if you lose your job, you won’t run the risk of a repossession by not being able to keep up with the monthly payments. This can happen if you lose your source of income. You might have to sell investments at a loss to pay for this debt in a bear market. Sleep better by avoiding consumer debt.
b) When you buy on credit, you might spend more than you would otherwise.
Don’t believe me?
Next time you’re in the market for a $20k car, try taking that money cash with you to the dealer. If you want to do this exercise on a smaller scale, try bringing $2k for that big screen TV you’ll want at some point. Let’s see if you end up parting with all that cash. Hence, you spend what you need, and not a penny more, when you pay with your hard-earned cash.
3. Max out your 401(k)
While you were in school, you didn’t learn much about this savings vehicle, called a 401(k). Learn about the basics of a 401(k) and as soon as you land a job that offers one, enroll and max it out! This is a big f-ing deal because it will set many things in motion for you. Oh yeah, you’ll hear that phrase again in politics.
A key to becoming wealthy is for you to take advantage of all the tax-advantaged accounts available. Many employers will match a percentage of your contribution to a 401(k), but your path to financial freedom will require you to go beyond that.
To reach financial freedom faster, you’ll need to increase your contributions to the maximum allowed by the IRS. If after a few years of working, you realize that a 9-5 is not something you want to do for the rest of your life you’ll have many other options. Starting to save early will give you a big head start.
4. Eliminate all consumer debt
You might be confused on whether to max out the 401(k) or pay off the student loans first. I can’t give you such type of advice because you’ll need to figure that one out yourself. I’d say it’s a matter of preference for the individual. My rule of thumb is that if your interest is more than 4% you should pay it off instead of investing the money.
If you’re doing either paying it off or investing, or both, you’re already on the right path. Also the interest deduction is phased out as your income level goes up which makes keeping it around less appealing as time goes by.
5. Redirect savings to the FI bucket after all debt is paid off
You can relax a little after you pay off all debt and start maxing out your 401(k) because you’ll money-saving habits will be on autopilot. You’ll have your own “undergraduate degree” in personal finance. This is the stuff that they didn’t teach you in school. At that point, life will be looking better for you. Enjoy the journey.
Marriage might sound like a good idea or moving to an apartment of your own, or maybe with a roommate, if you live in an expensive city.
You’ll learn that material possessions don’t bring true happiness. You’ll be ahead of the game since you didn’t follow foolish spending habits. And you’ll get value for the experiences or things that you decide to spend your life energy on.
And, a few more things you might like to know:
- Bush will be staying in office for another term – whaaaat?!
- You’ll see the first black president within the next decade but you won’t like who comes after
- Those apples that you adore will become huge by creating smart products
- Some kids from the Bronx are going to make Bachata the hottest Latin music worldwide and you’ll get to appreciate their raw talent before they make it big
- Your favorite artist will come out of the closet
- You’ll bring the Latin flavor to the early retirement blogging community
- And last, but not least, you’ll meet a hot Russian turned-Latina who is going to change your world around… Buckle up and enjoy the journey, boy!