If you have a child graduating college this spring, it’s quite an accomplishment — not only for them, but for you as a parent. When that baby was born so long ago, surely you gave a bit of thought to how you would be able to raise the child with values, keep your baby safe and healthy, and how you would ever pay for college.
Now that their diploma certifies that they officially “know everything,” they might not want to hear more advice from you. So perhaps these financial suggestions from me will help point them in the right direction.
—This is your chance to prove the worth of your college education. All of the decisions you make now are on you, not your parents. Many of those decisions will be financial ones: dealing with your student loans, your choice of jobs and living expenses, and your plans to save for the future. Wise choices made right now will determine the trajectory of your financial future. We all make mistakes, so it’s never too late to change course — on careers, marriage partners or money. But not taking advantage of time is the worst mistake you can make, and it can’t be undone.
—Time is money. Right now, money might seem the most valuable asset you can have. Money is likely the most scarce resource, while it seems you have plenty of time stretching out ahead. But time is more valuable because it is the one asset you can never re-create. Time leverages money.
Example: If you put $2,000 a year in a tax-free Roth IRA (that’s about $38.50 a week), and invest in a diversified stock market fund (S&P 500 stock index fund), and if the market performs as well over the next 50 years as it has, on average, in the past 50 years (a 10 percent average annual return with dividends reinvested), then your account at age 70 would be worth about $2.5 million tax-free. Reconsider that latte a day!
—Debt will bury you. It’s not the original cost of the purchase, but the growing and compounding burden of interest that drags you down. If, instead of saving that $2,000 a year, you use it to purchase new furniture, clothing, a new QLED TV or restaurant meals on your credit card, it could take you as long as 30 years to pay off the balance if you make only the required minimum monthly payments. By then, all of those “important” purchases will be in the dumpster or down the drain! And you will have paid at least four times the original amount in interest charges.
The same goes for your student loans. They paid for an education to get you a better job and a better future. Now pay down those loans starting immediately, before the blessing turns into a burden.
—Always save something. Make it an automatic habit, so you don’t have to make decisions about whether you can “afford” to save. Set up that Roth IRA at Fidelity or Vanguard, and ask them to automatically deduct $200 monthly from your checking account. Don’t think you can’t afford it. Take a look at your paycheck stub. See that big, automatic deduction for FICA? That’s Social Security — something that will provide very little for your retirement years by the time you get there. And it’s not voluntary!
5. Be optimistic. Don’t get buried in today’s personal problems or national headlines. America has survived and advanced through a lot of troubled times over the past 250 years. And, just as previous generations have, yours will go on to make our country more prosperous and a better place for your own generation and those that follow. Never compromise on your basic principles; no reward will ever be worth betraying what you know is right and good. But also accept that your success is what moves our entire country forward, allowing it to grow and care for those who did not have your gifts. In helping yourself, you also help others.
This is my financial “commencement speech” to you. And it’s The Savage Truth.