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Financial Advice for New College Graduates

Financial Advice for New College Graduates

Motley Fool content strategist Mary Long caught up with four other Motley Fool employees to get some actionable advice for new college grads. They discuss: 

What to do when you get your first paycheck.
How risk-averse grads can get in the stock market.
Preparing your finances for job-hopping. 
The difference between being a Rule Breaker and a Bridge Burner. 

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on May 13, 2023.

David Gardner: A lot of people, especially younger people we’re hearing, have not been as positive understandably. We had our college interrupted by COVID, not Bright Eyed and Bushy tale is maybe graduates of the past, but that’s very temporary. I think more than anything the key to happiness and thriving is when you feel like you are aligned with a purpose in the organization for profit or not-for-profit that you’re working for.

Mary Long: I’m Mary Long. That’s Motley Fool co-founder and Chief Rule Breaker, David Gardner. Commencement season is underway. I caught up with four Fools and gathered some tips for college grads about investing, budgeting, and starting your career. We kick things off with Motley Fool senior analyst, Ron Gross, for insights about getting into the stock market, even if you don’t love risk.

Ron Gross: I think if you’re the type of investors, certainly at a young age where you’re either wary about the stock market or you’re not comfortable with risk, I still believe the guidance should be getting involved in the stock market at a young age for a lifetime investing is the way to go, but you can do it in a more conservative way. You can do it through blue chip stocks, really well-known mature companies, something like Berkshire Hathaway would come to mind. You could use exchange-traded funds that mimic an index like the S&P 500 or the Russell 2000. Get invested in the stock market, but if you don’t want to take on a lot of risk, I think that’s perfectly acceptable.

Mary Long: The past few years have seen a surge on day trading followed by a general distrust of the market after that didn’t really work out so well. What’s your advice to someone who went through a crypto or day trading phase and got burned out on investing?

Ron Gross: I would say that person actually wasn’t investing. That person was speculating. It’s good to learn that lesson early on we often do. I learned a little lesson like that using options when I was younger. Put that behind you and say, I’m no longer going to be a speculator or a trader. I’m going to be a long-term investor. I’m going to invest in companies, not stocks. It’s a little bit of a nuance, but it does make you feel a little bit different about what you are doing. Get invested in companies you believe in, companies that you use or know well and hold them for long periods of time. The less selling you do, you’ll probably end up having a better experience over the long term.

Mary Long: Whether it’s a speculator turned investor or just someone who is interested in investing, but a super-super beginner, is there an ETF, a stock, a reit anything that you recommend someone could start to play around with to teach themselves the trick of the game?

Ron Gross: The trick of the game, well, let’s think of it more as a lifetime of learning and investing to build wealth over very long periods of time. I think index funds are a perfectly good way to go here. I own all of the funds I’m about to mention, and I’ve been a stock investor for 30 plus years. I think the S&P 500, Spiders, SPY is a great way to go. Russell 2000 index fund, IWM is great, and the Nasdaq-100, QQQM, all three great index funds. For a first stock, I will throw in Berkshire Hathaway, which is a collection of wonderful businesses, acts in the sense like a mutual fund, but it’s an individual stock.

Mary Long: What’s a lesson you learned from investing over the years that you wish you could go back and share with your just graduated-from college self or would you stay quiet and avoid the butterfly effect of saying anything at all?

Ron Gross: Well, I would definitely start sooner. A little less beer money is fine. Get in the game as soon as you can, even if it’s just slowly. Invest in your 401(k), if you can, at least up to the match, if your company matches. That’s free money. Then my second thing would be, don’t sell so quickly. Hold onto great companies for very long periods of time because they’ll continue to produce results for much longer than you probably would have originally thought.

Mary Long: Next up, Alison Southwick has some career advice that she’d offer her fresh out-of-college self.

Alison Southwick: As an adult, you’re going to end up in a lot of different rooms full of a lot of different people. You’re going to go to office happy hours, industry conferences, friends of friends cookouts. Here’s the bad news. You’re never going to be the smartest person in the room, or the most attractive, or the most clever, but you can always choose to be the kindest person in the room. As soon as possible, get comfortable with the act of walking up to complete strangers, particularly those who may look a little scared or alone, and learn how to say, hi, I’m Alison, what’s your name? Then take it from there. You’ll be surprised at all of the really interesting, great people you’re going to meet who might even change your life.

Mary Long: Maybe before or after you’ve gone to those different networking events, those happy hours, you might find yourself in your first job. Does your first job have to suck or is there a possibility that could be something more?

Alison Southwick: Well, your first job likely won’t suck it all. It can feel a lot like college, except you can maybe afford more expensive beer. In your first job, you’re likely going to be working with other people your age and you’ll gravitate to them and you’ll become work friends and you’ll send snarky Slacks during meetings and you’ll get drinks after work and you’ll probably even date a coworker at some point. Your first job, it can be an amazing experience. If it’s not, then consider it a learning experience because you are never done learning. College taught you maybe 20 percent of what you need to know to have a successful career, and your first job is where you’re hopefully going to learn the next maybe let’s say 50 percent.

Mary Long: School years have this definite timeline of finals, quarters, one year after the next. You know where you’re going next, time after time, and now you have to sit at a desk for forever until you die, until you retire, which feels super far off. How do you prepare for that transition?

Alison Southwick: I’m going to put on my cranky old lady glasses here for a second because the question is tinged with the assumption that work, and particularly working at a desk, sucks and it’s this life of drudgery spent formatting Excel spreadsheets, but the truth is that you are extremely lucky to not just be employed while thousands are being laid off right now, but you also have a sitting all day sipping coffee job. Many people are out there literally breaking their bodies down every day doing physically demanding labor for not a ton of money so that you and I can sit in comfy office chairs all day and shout you’re muted at coworkers through Zoom. But here’s the good news for all you college grads. If you don’t like your job, you likely have the education, the means, and the time to build your skill sets so you can find a different job. When you are a bright young thing, you are largely the source of and the solution to all of your life’s problems. Feel free to be equally parts terrified and comforted by that.

Mary Long: Whether it’s your first job or your second or further down the line, what are some early signs that you’ve found something that’s really good and that you’re a part of a healthy company culture?

Alison Southwick: Well, to crib Tolstoy, because I feel like I can get away with that on this podcast, great managers are all alike. Every bad manager is bad in their own way. Great managers trust you to get work done, they give you supportive guidance when you go off course, they have your back, they’re rooting for you to succeed, but bad managers can be bad in all sorts of ways. Some might micromanage you, some might undermine you or throw you under the bus, some might ignore you completely. You’re going to have all kinds of bad managers in your life, even at companies with supposedly great cultures. A bad manager will make or break your happiness at work, so cherish a great manager. More importantly, learn from them so that you can be a great manager to someone else one day.

Mary Long: If you’ve just gotten a job, what do you do with your first paycheck? Robert Brokamp has tips on crafting your very first big kid budget.

Robert Brokamp: Well, there’s this one rule about budgeting that’s become more popular over the last 15, 20 years and it’s become known as the 50/30/20 rule. It goes like this. Fifty percent of your budget should go to essential expenses like your rent, utilities, 30 percent for discretionary expenses like travel, and then 20 percent toward your savings for goals like retirement, buying a house and things like that. It’s just a framework that everyone will be able to follow it exactly, especially if you have a lot of school loans, but I like its emphasis on keeping essential expenses to only half your budget, especially housing since that’ll be the biggest item in your budget. If you can keep that to a third or even a fourth or your budget, that’s a solid foundation. Of course, I like the idea of saving around 20 percent of your income. In fact, I think that’s where you should start. If you can manage that, then how you spend the rest of your money may not matter so much. All that said, I am a big fan of doing things in your ’20s that are more difficult when you’re older. Things like backpacking through Europe, doing interesting, but low-paying volunteers type jobs, living in a dumpy apartment with a bunch of people in a big city. I did all those things and I don’t regret any of them, even though I’d probably have a little bit more money if I had made different choices.

Mary Long: I love that you’ve mentioned that because I followed a very similar path, worked a lot of odd jobs, a lot of dumpy apartments.

Robert Brokamp: But great memories, right?

Mary Long: But great memories, great experiences. Can’t take those away.

Robert Brokamp: Yes. Exactly.

Mary Long: You mentioned siphoning off a certain bit for retirement and other savings goals, but retirement, especially when you’re starting off your first big kid job, feels super far off. What is the point in saving for it now?

Robert Brokamp: The bottom line is that time is one of your biggest assets when you’re younger and I’m going to demonstrate this with some numbers. Let’s say you’re 22 years old and you start investing $400 a month at age 22. You would have more than $900,000 by the age of 65, assuming return of eight percent a year. But if that person waited a decade and didn’t start until age 32, they’d have just 390,000 by age 65. Less than half of the person who started a decade early. Begin saving as soon as you can, as much as you can afford.

Mary Long: Chances are that first big kid job that you find your way into might not be one that you love and that you intend to stay in forever. How should someone think about the future if they plan on job hopping?

Robert Brokamp: I’m going to give you the most boring advice in financial planning of that is having an emergency fund that’s three to six months of must-pay expenses set away somewhere safe, like in a savings account or a checking account. Because if you go from one job to the other, you may have to have a month or two where you don’t have a paycheck, so you have to live off that. But the other thing I want to say is that if you are participating in the retirement plan of that first job, maybe contributing to the 401(k), you want to make sure that when you leave that job, you roll that 401(k) over to an IRA or your new 401(k). Unfortunately, around 40 percent of people cash out their 401Ks when they switch jobs, they’ll then owe taxes plus 10 percent penalty if they’re not 59-and-a-half, plus, they’ve lost out on those years, if not decades of growth at that money could have earned. Make sure that you do something smart with your old 401(k).

Mary Long: Does the possibility of a recession change how you think new graduates should think about their finances, especially being so new to the workforce and to this like recurring and fixed paycheck, what can they do to prepare for it and create stability amid a potential downturn?

Robert Brokamp: This might not be the best answer for the question you’re asking, but here’s one piece of advice that my dad gave me when I started cutting lawns for our neighbors when i was a teenager. He basically said this, you always do more than what is expected of you. I always look for ways to add value, so now when my dad was telling me about this with mowing lawns, he said, well, make sure you trim the bushes, you take out the garbage, you pull some weed, stuff like that. But once you have a full-time job working for an employer, don’t just fulfill the requirements of the job description. Do it in such a way that after 6-12 months of you during that job, your colleagues will be able to say, all the people had that job, you’re among the top 10 percent of people that do it. That’ll get you bigger raises, gets you promotions, open doors for you. It’ll make it less likely that you’ll be laid off if a company needs to find a way to save some money, but it’s not a guarantee. You’re just trying to stack the odds in your favor. Even if you do get laid off, your previous employer will be able to write you a going recommendation.

Mary Long: That value seems to be always important, but especially in this age of ChatGPT and the questions about what that might do to jobs.

Robert Brokamp: You have to find some way to add value that is unique to you to be able to point to three to five, 10 things. Say, if I didn’t do these things that were unique to me, our company would not have this, our customers would not have this, our colleagues would not have this.

Mary Long: If you could go back to that younger, perhaps backpacking Bro, what’s a piece of financial advice that you would give to yourself right after college?

Robert Brokamp: To be honest, I was pretty good with money when I first graduated from college, I avoided debt like the plague and I started saving for retirement and my mid to early 20s. I would say really my biggest mistake was that after I got married, my wife and I bought a house too soon. I know everyone loves the idea of owning a house, but the problem with a house is it is a big upfront purchase and there are large transaction costs. My wife and I bought a house that fit our family at the time, but our family grew, so we had to move up to a bigger house. We would have been much better off if we had waited until we bought a house that was the right size for the family we knew we eventually we’re going to have. I would say, do not buy a house unless you are very confident that you’ll be happy with it for 7-10 years.

Mary Long: Finally, I spoke with Motley Fool Co-Founder David Gardner about what he would say if he could hope in a time machine and give some advice to his recently graduated itself, or if he’d just avoid the butterfly effect.

David Gardner: I would definitely hop in the time machine it’s worth doing, and what I would say to my younger self is, wherever you are as you graduate, ask yourself, where are the bleeding edges of new technology in our society, in our culture? It almost doesn’t matter what job you do. I would get to a company that’s working in that space. For example, genomics, that’s an exciting area. I’m an English major, but I would be telling myself, just go answer phones over there at the genomics company or if you’re a product manager, those experiences can be taken to any one of a whole bunch of different organizations. I would really focus on where is the future and be there today.

Mary Long: If you’re trying to get to the future, would you give yourself any stock advice or is that insider trading? If you go back to talk to your younger self. 

David Gardner: I think first of all, that it should not be considered insider trading. I definitely would give myself a few stock tips. Let’s be clear, time travel clearly has not been invented because no one has been passing through our time as far as I can tell or any other time and if it was invented in the future, we’d know it by now.

Mary Long: [laughs] When you’re starting out in a job in your career, you’re young and ambitious. What’s the difference between being a Rule Breaker and more of a Bridge Burner?

David Gardner: Well, first of all, a Bridge Burner to me implies that you are just thinking mainly about your own career and if things don’t work, you’re just going to burn that bridge and move on. I hope you wouldn’t burn the people that you leave behind you. I think even if in our early jobs we don’t stay very long as we get to know ourselves or what the world wants from us. I hope we’re building good relationships with people all the way through, but I think part of being a Rule Breaker is that you are realizing it’s not about you. It’s actually about the rules that are being broken. It’s about what’s happening in our society in a good way that you can contribute to. I know a lot of people, especially younger people we’re hearing have not been as positive understandably, we had our college interrupted by COVID, not as bright-eyed and bushy tail is maybe graduates of the past, but that’s very temporary. I think more than anything, the key to happiness and thriving is when you feel like you are aligned with a purpose in the organization for profit or not-for-profit that you’re working for that fits who you are, that you’re excited to get out of bed each day to go to work. That’s such a good indicator.

Mary Long: It’s no secret that you’re a diehard optimist. What’s your advice to someone who’s graduated or is about to graduate and they’re feeling down and out? Maybe it’s because they are struggling to find a job or they know where they want to be, but are afraid that that job might be replaced by ChatGPT, or they’re just scared of leaving the structure of academia?

David Gardner: Well, I have two thoughts for anybody who is feeling a little down and out. The first is if that’s tied to loneliness, and I could easily understand that in fact, the surgeon general’s said earlier this month that there’s an epidemic in America. It’s not cigarettes anymore, it’s not three packs a day, that was an earlier era. It’s loneliness. If you are down and out, that might well be part of how you’re feeling and what I would say to you then is, let’s make sure we’re getting out and connecting and building friendships. It helps a lot if you do have a job and you meet somebody who cares about you at work, your boss, or somebody older than you, really value those relationships and looks for those relationships. But of course, your friends from college or making friends at work, making an effort even if you’re in a hybrid or remote work situation to get to know people, even if you’re working at a hybrid company, you can still have coffee with people, you can still go out to happy hours. I think loneliness is a big problem right now and I really just think the antidote is obvious. Spend more time with others face-to-face. On the other hand, if it’s not loneliness it’s just a sense of not knowing what you want to do, I would say that this is the smartest generation ever born, and part of how smart younger people are these days is they’re so caring about what they want to spend their lives on. The degree of angst felt by many in terms of what job you take and what that says about who you are or how you’re spending the precious time we have on this earth. I think there’s one aspect of it that can be a little bit over-weaning, that we might be overthinking things sometimes and just get out there, get your feet wet, get active. Again, meet people.

Mary Long: You started to touch on this just in pushing the gaiety of meeting people, even in a virtual first-world. But beyond friendships at work, how would you suggest a young person go about finding a mentor in their virtual first world?

David Gardner: Well, I think that for me a lot of it is either going to come from new relationships that you have. Virtual first still means real second, I think. I prefer virtual second and real first, I think that’s going to be the healthiest version of me and for most people. But if you do find yourself in a truly a virtual first environment then you either have two choices finding a mentor where the first is finding somebody new in that virtual or real environment, but the second is, if you’re somewhere around 21 years of age, you have 21 years of relationships that you’ve built up. I bet there are already people, school teachers, someone from church, somebody from a past summer job, parents, friends, uncles, aunts. There are lots of opportunities for us to get to spend time if you feel that you want to with somebody who has some wisdom for you. I would say, try to seek out people who have a genuine interest in you. That’s easy to assume from family members or from past coaches, let’s say, but if you’re talking about new relationships, make sure that this is somebody that you trust is really thinking about your best version of yourself. That’s easier said than done but I think that’s really important. The best mentors are going to be people who really want the best for us on our terms not on there’s.

Mary Long: Any parting advice for someone who’s just recently graduated?

David Gardner: One other bit of advice that occurs to me is my experience with my first job and that is I quit it within about four months of getting it. In a lot of ways as the oldest child and my family and the classic duty-bound elder child, I’ve thought this is not what I should be doing. You shouldn’t be taking a job and then not even nailing down your first year at that coming. That’s not going to look good on your resume. The punchline is, I had to help start a company instead of getting hired by anybody else’s at that point, but I will say it was one of the best decisions I’ve ever made. After a four months, I just let my employer know. It didn’t feel like it was for me. I didn’t really like the office culture very much. I didn’t talk about that with them, but I just realized it was a creatively deadening job. I sometimes asked myself, had I decided I should give it the old college, try and stay there a minimum of two years, etc, I might have missed ever helping start the Motley Fool, and I certainly would have missed the excitement of the Internet as it got started. I’m really so good, I pat my younger self on the back from time-to-time in my head, that I made the gutsy decision to leave a job that felt creatively detonating.

Mary Long: As always, people on the program may have interest in the stocks they talk about. At The Motley Fool may have formal recommendations for or against, so don’t buy stocks based solely on what you hear. I Mary Long. Thanks for listening. We’ll see you tomorrow.

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