Here is the opening line of the college commencement address no one has invited me to give: “You are worth $3 million and the checks will start arriving in your bank account within months.”
The new 2017 graduates would have no understanding of how my seemingly outrageous statement is 100 percent true (in a roundabout way). The National Association of Colleges and Employers found that for 10 broad degree categories ranging from engineering to communications, graduates are projected to have an average salary of $50,556.
That salary, compounded at a modest 2 percent annual raise, over a 40-year career, equates to approximately $3 million of lifetime earnings. In other words, our human capital, our ability to generate income, is probably the most valuable asset of our lifetimes. “So young millionaires,” I would continue in my imaginary address, “what are you going to do with this wealth for the next 40 years?”
Bringing the question closer to home, my roles as a financial planner and as a parent are intersecting this month as all of our children are graduates: one with a master’s degree, another with a bachelor’s degree, and the youngest completing high school.
What are you going to do with this wealth? My advice, that none of my children have asked for, is this:
First, create a spending plan, no matter how puny or primitive, so that your week-to-week expenses are less than your net income. If you start charging life on a credit card, you are messing up already.
Drive your used beat-up car for another two to three years. I know the math is overwhelming, but a $500 repair is a lot cheaper than a $500 per month car loan payment for five years
Expect to be envious of others. The “Joneses” will have nattier clothes, a car with better gadgets and nicer furniture in a nicer apartment. Deal with it.
Save a few thousand dollars in a cash reserve (see car repair). And, simultaneously join the 401(k) at work. Contribute at least to the dollar amount that your company matches. If you don’t have access to a corporate retirement plan, start a Roth IRA. Use at least half of future pay raises to increase your retirement contribution.
Start investing with an S&P 500 stock index fund that diversifies your dollars into America’s best companies. If Warren Buffett likes the idea, then it is OK for you too. Be patient; compounding growth is wealth-building magic.
Develop your human capital. Read. Seek out mentors. Ask lots of questions. Don’t just work hard, be indispensable.
Be prepared for setbacks, disappointment and unfairness. In life there are things we can control, usually our own thoughts, feelings and actions, and things we can’t control – everything else!
Build meaningful relationships. Start by turning off your smart phone and listening to others attentively.
I would conclude my imaginary speech, as mortar boards slipped off the heads of snoring graduates, with this advice, “Listen to your mother — handwrite a thank you card to everyone who acknowledged your amazing achievement.”