“I want to say one word to you. Just one word.”
Benjamin: Yes, sir.
“Are you listening?”
Benjamin: Yes, I am.
“Plastics.”
Benjamin: Just how do you mean that, sir?
What would you tell a new university graduate if you could? Would you espouse the virtues of starting a career in the plastics industry, wearing sunscreen, or having the courage to follow your heart?
I recently asked users of Morningstar.com, a sister site of Morningstar.co.uk, to weigh in with their best financial advice for new university graduates, and they were eager to share their wisdom. A few key themes quickly emerged: Live frugally; start saving, even if it means starting small; and do what you love. And when it comes to your investments, stick with the basics.
Driving Old Honda Now = Peace of Mind Later On
One of the key pieces of advice readers imparted falls into the category of what not to do: Don't let those first pay cheques slip through your hot little hands. Users shared firsthand experience, noting that driving older cars and bunking with Mum and Dad had paid great dividends in the form of peace of mind later on.
VALUEINVESTOR wrote, "One of my finance professors told our class 'Buy a used Honda and save as much as you can in your retirement account in an index fund.’ I have never forgotten this advice. I think one of the most common things graduates do when beginning their career is acquire all the trappings of success before they are successful. I see most of them buying new cars, nice clothes, fancy apartments or the biggest house they can afford. At the same time they put little emphasis on building an emergency fund and saving for retirement. I would repeat the advice I received: Don't waste money on material things and save as much as possible, as early as possible. Most grads are accustomed to living on a small budget, so keep it that way for a while. It could save years of misery ahead."
The virtues of debt avoidance was a recurrent theme, with posters noting that taking on debt isn't only financially crippling but can also limit one's life choices.
MarginofSafety stated it plainly: "'Stuff' will accumulate over time. Do not accumulate debt to pay for 'stuff.'"
Cutthroat agreed: "Don't apply for every credit card that comes along. Find one that fits your needs best and pay that one off every month. Never buy anything on credit that is certainly going to decline in value, such as cars, stereos, or big-screen televisions."
Allenjam also advised discipline on the credit card front: "Pay cash or at least pay off your single credit card every month. That kind of discipline will pay off handsomely by preventing unneeded purchases and avoiding usurious credit charges by the card companies."
Rathgar wrote, "If you start off with debt you will be trapped by debt your entire life. Buy the used car, live with roommates or your parents, spend only what you need and save 15% of every monthly pay cheque for the rest of your life. If you get ahead of the game, you will have financial freedom and independence. If you are indebted, you will have jobs you don't like--since you took the job to pay off your bills--and stuff you don't need."
Scott123 amplified the debt-avoidance theme, writing, "Live like a pauper after you start work, at least for a few years, and save hard and pay off those loans or make a very serious dent in them. If you're not already married, with the spouse comes children and added financial strain. When you hit middle age, your parents' finances become an issue as they become older, as well. Don't obligate your income to the lender before you get the pay cheque."
Finally, Bill1234, ever the romantic, wrote, "Bag that big, lavish wedding when the day comes. You are not a prince or princess. The day is not made special by how much you spend. Take the money that would have been spent on your special day to pay off debt. Go into marriage with a clean slate."
Have a Backup Plan
Several users noted that the key way to stay out of debt is to make sure you have ready cash on hand to pay for unanticipated expenses.
Scott123 laid the groundwork, writing, "Set up an emergency fund of at least three months of living expenses in a high-interest online bank account. If you're self-employed or work on commission, you will want to have more cash liquid regardless."
MarginofSafety noted that having an emergency fund can have spillover benefits for other parts of a person's financial life. "Learn that by having an emergency fund, you can save a large amount on insurance costs of all types (vehicle, home, and health insurance) by having a larger deductible. A basic principle of insurance is to exchange a certain small and known cost for an uncertain and unknown large cost. I see a large number of otherwise intelligent people of all ages paying huge insurance costs, to have first dollar coverage--this is a waste. An emergency fund also helps you not have 'emergencies' that require debt to fund them, especially credit card debt."
