Friday, January 8, 2010, 9:12AM ET - U.S. Markets open in 18 mins..

Laura Rowley Money & Happiness

Laura Rowley, Money & Happiness

Financial Advice for Fresh College Grads

by Laura Rowley

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story
Excellent (221 Ratings)
4.07692/5
Posted on Wednesday, May 27, 2009, 12:00AM

My niece Kara just graduated from a Rhode Island university with a teaching degree; this was a bit of a shock to my system, since I first met her when she was just learning to walk. This week I wanted to offer Kara and other grads some advice on how to think about money and how to use it as a tool to achieve more happiness. Given what’s happened over the past year and a half, this isn’t an easy assignment.

Too many people are no longer reaping what they sow. They worked hard and got laid off. They saved diligently for college, and their 529 plans tanked (while tuition grew at double the rate of inflation). They contributed regularly to their retirement funds and lost 40 percent or more of their portfolios. They took out a mortgage they understood to buy a home they could afford, and it plummeted in value. They paid for health insurance but ended up bankrupt when they got sick. They followed the rules, and their dreams were derailed.

Some writers have suggested that recent experience means the death of personal-finance advice, because the conventional wisdom turned out to be so wrong under the circumstances. But this is a knee-jerk response that throws the baby out with the bathwater.

Perhaps the real problem is that the personal-finance advisers sold people on the illusion of total control. The underlying message of most personal-finance books is, "Do this and you’ll be rich like me! Guaranteed!" This ignores the fact that making big money -- and hanging onto it -- comes from a confluence of unique factors: upbringing, education, talent, a lucky break, perfectly timing a market bubble, and not bumping into Bernie Madoff at a cocktail party.

We Don't Have Control

The truth is we don’t have control. We can set goals based on what we value most, take concrete steps to achieve them, live within our means, do our best to manage risk, try to find good advisers, and sidestep the bad guys.

But that doesn’t protect us from the stupid things that government, institutions, and other people do that wreak havoc on the economy. In other words, you can eat right and exercise and still get run over by a drunk driver. That’s why we need to have common-sense regulation of financial services in the same way that we regulate drinking and driving. (How about a simple suitability requirement for the nation’s mortgage brokers so they can’t refinance an 84-year-old six times in three years? And a fiduciary duty for anyone who makes his living managing other people’s money?)

To my darling Kara and the other 2009 college graduates, here are the habits of financial peace that I have found in the past two decades, and they do work -- whether the Dow is at 14,000 or 6,000.

1. Work hard at the right things.

Continually develop your joyful skills, broaden your experience, raise your hand for new challenges, and take every free seminar your employer offers. Be as accomplished at making friends and contacts as you are at your job. Keep in mind that public companies often reward their executives in stock, and the stock prices usually go up when the cost of labor goes down (translation: you get laid off, your job moves overseas). Even if you work exceedingly hard, be aware that your competition is global and you are entirely dispensable. So invest your time developing your distinct abilities and a network that goes with you from job to job.

2. Define “rich” on your own terms.

Make a list of a dozen things you value most in life -- the qualities as well as the stuff -- whether this includes strong friendships, excellent health, independence, or a home on the beach. Set priorities and put a dollar figure on them, then work backwards -- if you want to buy a home in 10 years, what do you have to do in five years, two years, six months, or next week and even today to get there? Keep your list in your wallet, and pull it out every time you are tempted to trade what you want most in life for what you want this second.

Be creative and flexible in your definition of rich experiences. Whether you own a house on the beach or you housesit for free, you still get to feel the sand between your toes. If you barter your babysitting skills for personal training instead of paying cash, you still get abs of steel.

3. Banks should pay you interest, not the reverse.

Pay credit cards on time and in full every month. If you already carry a revolving balance, get rid of it as quickly as possible, even if it requires living at home (or with 12 roommates) for a period of time. Credit card firms pretend they exist to help you “live richly,” to borrow from an old ad campaign. But they are like drug dealers -- you’ll get a momentary high and then become wretched and dependent and kill yourself trying to kick the habit. Just say no. Do not arbitrage credit cards, rolling from one zero-interest card to another, because it can trash your credit score, and one tiny misstep can cost a fortune. Given recent legislation reining in the worst practices of credit companies, the days of ubiquitous zero-interest offers are probably over anyhow. Meanwhile, choose a credit union or local bank for your day-to-day finances, and if you do choose a megabank, don’t run afoul of their rules. Your finances will die the death of a thousand stupid fees.

4. Treat your credit score like a vintage race car.

Understand the mechanics of the thing, maintain it, buff it, shine it, and it will speed you in style to your destination. If you let it break down, it will damage your ability to get a job, rent an apartment, or borrow money to buy a car or a home -- and add tens of thousands of dollars in extra costs to everything in your life. 

5. You do not need a million dollars for retirement.

The retirement industry will try to convince you that you do, because they make a lot of scratch managing your excess dough. Save 15 percent of your income from the time you start working in a tax-sheltered vehicle and you should be fine, although there are no guarantees. If you don’t have a 401(k) plan, lean toward a vehicle such as a Roth IRA, where you pay the taxes now, when you are in a lower income bracket, and take the money out tax-free later. The preposterous bailouts of this decade will come back to haunt Americans in future decades in preposterously high tax rates.

6. Learn to manage your own money.

Figure out what a stock is, what a bond is. Learn how the power of compounding works and how taxes affect your returns. Do not invest every penny in the stock market unless you have the stomach to lose every penny you put in. Find a percentage you are comfortable with, and if that’s 90 percent or 10 percent, know that there are risks on both sides. Historically, the broader stock market has never gone down to zero -- but individual stocks and funds have. So if you want to be in stocks, diversify your risk by buying very low-cost index funds or exchange-traded funds. Don’t know what an index fund is, or an ETF? There are dozens of free Web sites and classes where you can learn.

7. Understand the cost of your investments.

Know exactly how much you are being charged in fees for the privilege of investing in whatever it is you choose to invest in, and that includes your 401(k) retirement plan. You may be getting ripped off royally by your plan administrator, in which case you should only participate if you get a match, and then only up to the match.

8. Take good care of your health.

Exercise, eat your vegetables, and don’t smoke. No one knows what’s going to happen with the health care system in this country. But at the moment, illness is financially devastating. A 2005 Harvard study found that medical reasons caused half of U.S. bankruptcies -- and more than three-quarters of those households had health insurance at the onset of the illness.

9. Be giving, be grateful. Both are surefire strategies to well-being.

This advice might give you better control over your path to money and happiness. But there are no guarantees. Spend your money and time doing things with people instead of buying a bunch of stuff. Because, while you may find yourself caught in the crossfire of an embattled economy, no one can evict you from your experiences or repossess your memories.

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story

Rate This story

Excellent (221 Ratings)
4/5
Sign-in to rate!

77 Comments

Showing comments 6-35 of 77<< PreviousNext >>
Sort: first to last

  • Yahoo! Finance User - Monday, June 1, 2009, 1:48PM ET  Report Abuse

    • Overall: 2/5

    taopraxis said it. I have no idea what my crifit score is because I have no desire to borrow money. I pay my bills and save for what I want before I get it. I played by the rules all my life and now that I am retired I have sufficient for my needs. Debt is slavery for sure. Freedom from all debts is the only financial asset you can count on to serve you well tomorrow. In the meantime, I can enjoy life today without biting my fingernails. You know, when you have no debt, you can live on very little money. No worries, mate; that is for the suckers.

  • taopraxis - Monday, June 1, 2009, 8:59AM ET  Report Abuse

    • Overall: 1/5

    Debt is slavery, so forget credit scores. Education is indoctrination, so forget degrees. Wall Street is crooked, so forget stocks and bonds. Government is corrupt, so forget voting. Press is propaganda, so don't believe everything you read. The system is ethically and financially bankrupt and has now failed, so get ready to be *free*. You're going to be on your own...you'll have to think for yourself and adapt. No formula can help you.

  • Mark - Monday, June 1, 2009, 8:00AM ET  Report Abuse

    • Overall: 4/5

    Mostly good advise. However I do believe it will take graduates at least a million dollars saved in order to retire in their 60's. Social security and medicare will likely be much smaller or non existent for Gen Y's. If you save 15% every year consistently, however you should be able to get there.... hopefully.

  • Su - Monday, June 1, 2009, 6:45AM ET  Report Abuse

    • Overall: 2/5

    Some good points for fresh grads or anybody (1,3,4,6,7). I'd agree and say that the hardest thing is not to expect your investments to constantly appreciate, such as houses and the market. A house is a very illiquid asset and you should understand you are taking a big, multiyear bet in buying a house and should be able to hold on for years when a housing recession hits, which is about once a decade. I'd also agree that ETFs are a good way to go so that you are diversified and pay the least fees and have less of a chance of losing everything. I would add that you should not live beyond your means (DO NOT spend more than you earn!) and always keep some cash stashed away in a more liquid asset such as high interest savings or CDs for a rainy day.

  • Yahoo! Finance User - Monday, June 1, 2009, 12:06AM ET  Report Abuse

    • Overall: 1/5

    Go Read Rich Dad Poor Dad by Robert Kiyosakil. Don't listen to this lady. If you ever want to experience financial freedom and never go in the rat race, listen to REAL rich people and not an employee of Yahoo.

  • Yahoo! Finance User - Sunday, May 31, 2009, 6:13PM ET  Report Abuse

    • Overall: 1/5

    Working hard is too hard. Go backpacking, go volunteer with serve.gov, or better yet, join a union. Obama got yo back! He'll give yous bailouts, social security, healthcare... you name it.

  • Yahoo! Finance User - Sunday, May 31, 2009, 1:41PM ET  Report Abuse

    • Overall: 2/5

    You forgot to say don't buy a house. Point number 8 cites a 2005 Harvard study of the reasons causing bankruptcy, but it was conducted before the housing crash. "Ever since the New Deal, American politicians have proclaimed their faith in the “property-owning democracy” and the “American dream of home-ownership”. For years they have actively encouraged the expansion of the sub-prime market. But the result has been an American nightmare. With housing prices still falling precipitously—the latest Case-Shiller index put the annual rate of decline at minus 18 per cent—there is an urgent need for action." (Niall Ferguson) The best action is inaction when it comes to home buying.

  • crikey - Sunday, May 31, 2009, 1:31AM ET  Report Abuse

    • Overall: 3/5

    good article, but not complete - share the truth which is "don't depend on credit for long term. Try to achieve what you can with the money you can earn. If you want more, don't sit and polish the credit score, polish your credentials."

  • Yahoo! Finance User - Saturday, May 30, 2009, 9:44PM ET  Report Abuse

    • Overall: 1/5

    Here's some better advice: give no money to Wall Street. Use no credit cards for any reason. Have no reason to ever care what your credit score is. Accumulate gold and silver. Vote for anyone who promises to abolish the Federal Reserve. Remain flexible and have an exit plan. Never believe any politician. They are the enemy. Buy some assault rifles.

  • junkgum - Saturday, May 30, 2009, 2:09PM ET  Report Abuse

    • Overall: 4/5

    An average salary is $10,000 approximating at the almost extreme ends. If you get more than $30,000 and you're not satisfied, I will label you pro-greedy.

  • Yahoo! Finance User - Saturday, May 30, 2009, 6:16AM ET  Report Abuse

    • Overall: 5/5

    Timely advice. It should be repeated at just about this time every year when graduates start out into the world of adulthood and accountability. They need a concise guide for life as they face the arrival of the day when along with reaping what they sow, they will start repaying what they owe to society.

  • Yahoo! Finance User - Saturday, May 30, 2009, 5:09AM ET  Report Abuse

    • Overall: 1/5

    Aout reaping and sowing? Hmmmnn... but you right on working hard and getting laid OFF and ON.

  • Yahoo! Finance User - Friday, May 29, 2009, 11:38PM ET  Report Abuse

    • Overall: 4/5

    I know this isn't just employment advice but my advice is to be the boss or be your own boss. I work at a company where the VP leaves at 6 every night except Friday when he leaves at 4. His employee works until at least 7 every night. When the employee hires someone, he'll be able to work until 6 and his employee will have to work late nights. The irony is the people who work the fewest hours make the most money. I've been seeing trends like this for 20 years. So be the boss or be your own boss.

  • monkeyfurball - Friday, May 29, 2009, 10:27PM ET  Report Abuse

    • Overall: 5/5

    Good advice. Booyah.

  • Yahoo! Finance User - Friday, May 29, 2009, 10:02PM ET  Report Abuse

    • Overall: 1/5

    Laura, why would you tell people we dont have control. All your articles are pretty good but this one is way off. First of all, we do have control. We as individuals have the control and power to get educated about finance and the stock market. You also say you do not need a million dollars for retirement. Your right. We need at least 2 million for retirement. With the current rate at which this government is debasing our dollar, a million dollars in 30 years for these newly college grads will basically be worth about 50k. Could you retire on 50k today? I dont think so. It seems that so many of the financial journalists today have no clue on how great the damage our federal reserve is doing. Adjusted for real inflation, the dow is lower than it was in the 1960's. Housing prices actually never gained anything in real terms. You cannot put money in a mutual fund and get rich. It will never happen. Never. Wall street has hijacked main street and will always come up with a new scam to tap into the everyday mom and pops savings. They do it everytime. This time, they tapped into the savings of people overseas by securitizing mortgages and selling them off to other countries. Since Americans had no savings, hence there was no credit, so wall st tapped into foreign savings and bankrupted that also. Its one big gigantic scam. A stock isnt worth a damm thing. The only real money is gold and silver and commodities. Also, all these college kids dont have a clue. They all go to college for the same damm thing. To be a teacher or to major in business administration. Its a total waste and these kids are all getting suckered into taking college loans out that they will never pay off just so they can learn something that they could of learned by reading 3 books at barnes and noble over a weekend. If America college kids dont wake up and understand that they have to create their own business to survive, they will be left in the dust by china and brazil. Our currency is collapsing and foreign investors are pulling out so quick its actually getting scary. College kids are better off moving overseas to china, or not even going to college and instead, just use the money to buy a house.

  • Yahoo! Finance User - Friday, May 29, 2009, 9:53PM ET  Report Abuse

    • Overall: 1/5

    All you people out there that think your careers are SOOO important....let me tell you the truth...... We... the people of the planet earth are ALL garbage men so start cleaning up your pigstys.......we will all be replaced with better technology and our life work will not amount to a hill of beans.....the first paragraph proves my point....Laura has worked hard to write all of this useless dribble.....she last saw her niece 20 years ago when she was learning to walk....her neice is now able to read Lauras important work but she hasnt seen her aunt during the most important years of her life and i bet her mother either....it all ends up meaning nothing at the end....whatever this means

  • Monty - Friday, May 29, 2009, 8:11PM ET  Report Abuse

    • Overall: 3/5

    Dave Ramsay says it in clearer terms, "Stay out of debt!" And, NO, we do not want radical changes to healthcare if it comes from the government. I don't want the government running my healthcare like they run social security and medicare. IF THEY DO - THEN WE WILL BE BANKRUPT!

  • richard - Friday, May 29, 2009, 4:33PM ET  Report Abuse

    • Overall: 4/5

    Very good advice, the two things I would add are you do need a million dollars and don't get sick, under any circumstances. You need the million to provide you with $40k per year until you die, and leave the rest to your family. It is the only decent way to live. If you get sick with much more than a cold then unless the health care system is changed you will be bankrupt, regardless of your health insurance (unless of course you are in the U.S. Congress). So the third thing you might do is vote against anyone who does not support radical change to the health care system, no matter what other political issues you may have if health care is not fixed we are all going to die broke.

  • Yahoo! Finance User - Friday, May 29, 2009, 4:24PM ET  Report Abuse

    • Overall: 3/5

    I still don't understand why all these financial advisors recommend Roth vs traditional IRA. It is not the fact that you will be in higher tax brackets in retirement, and Traditional IRA helps you to bring more cash home NOW, which is critical in getting back on the feet after college.

  • Yahoo! Finance User - Friday, May 29, 2009, 3:57PM ET  Report Abuse

    • Overall: 4/5

    I'm glad your niece received her degree in "teaching" and hope she will make a valuable "contribution" to our next generation. It's is very dishearting to see the level of "excess" our college students have been living and seems to be only getting worse the last several years!! If I would have any words of advise it would be having a "college" degree does not mean you are "owed' anything. Go out and work hard......period!!......Pay off your college loans!! When you buy your first car......pay that off.........When you move into your first house.....Pay your mortgage!!

  • Yahoo! Finance User - Friday, May 29, 2009, 2:54PM ET  Report Abuse

    • Overall: 4/5

    Don't expect Roth IRAs to be tax-free forever. With the need for more tax revenue, expect changes in Roth IRAs. I doubt previous earnings will be taxed, but I fully expect that some year all future earnings will be taxed at withdrawal, probably after convincing many people to convert traditional IRAs to Roths.

  • Yahoo! Finance User - Friday, May 29, 2009, 10:06AM ET  Report Abuse

    • Overall: 3/5

    Not too many jobs out there for young College Grads. Look at Chrysler and GM, going down fast. Who would want to work for Jeep/Chrysler? They will soon be out of business for good.

  • Chris - Friday, May 29, 2009, 9:30AM ET  Report Abuse

    • Overall: 4/5

    Well written and great advice for the young AND not so young.

  • Kwong Yew - Thursday, May 28, 2009, 7:09PM ET  Report Abuse

    • Overall: 5/5

    A simple yet fundamental discipline for all young adult. Dear people out there, WaKe UP and gEt bAcK ON TRack!!!

  • Ken - Thursday, May 28, 2009, 6:30PM ET  Report Abuse

    • Overall: 2/5

    Take good care of your health - that includes keeping carcinogens such as birth control pills out of your bodies!

  • KK - Thursday, May 28, 2009, 5:56PM ET  Report Abuse

    • Overall: 4/5

    LOL! gobblecackle67--I'm glad people still read Thoreau, and appreciate him. Fillup--Yes, I'm sure most of us would like rich better! :-)

  • Yahoo! Finance User - Thursday, May 28, 2009, 5:36PM ET  Report Abuse

    • Overall: 5/5

    An excellent article. These are very good advices, not just for the newly college grads. Best of luck to Kara and all of the '09 grads on their future endeavors.

  • Gumbi - Thursday, May 28, 2009, 5:25PM ET  Report Abuse

    • Overall: 5/5

    Laura, so what your saying is: 1. Stocks crashed, invest in paper assets. 2. Real estate tanked, buy for capital gains. 3. A college degree isn't glamorous anymore, go to college. 4. The job market sucks, go to college to get a job. 5. Dreams are shattered, so lessen mine. 6. Financial advisors sold an illusion, continue to buy. 7. We don't have control, manage control. blah blah blah

  • Yahoo! Finance User - Thursday, May 28, 2009, 5:00PM ET  Report Abuse

    • Overall: 2/5

    Another crop of college grads. Spend four years and thousands of dollars. Better have a meaningful field of study because getting a general business degree from some middle tier school will get you a cashier position at Wal Mart. College has become so common it's not an accomplishment anymore. Jeez anyone can get a college degree. It's become diluted and meaningless. Glad I don't have kids!

  • Yahoo! Finance User - Thursday, May 28, 2009, 4:55PM ET  Report Abuse

    • Overall: 3/5

    im just gonna move to the rain forest and eat wild mushrooms

Showing comments 6-35 of 77<< PreviousNext >>
The columns, articles, message board posts and any other features provided on Yahoo! Finance are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author's own and not necessarily those of Yahoo! and there is no implied endorsement by Yahoo! of any advice or trading strategy.

More From Laura Rowley

Money & Happiness

Discover the secrets to financial happiness. Laura's book offers practical tools and positive strategies to create "the good life" in a meaningful way.

More about Money & Happiness

Learn to identify your values, banish debt, start saving, and investing; plus Laura's favorite online resources.

Order your copy of Money & Happiness today and boost your financial well-being!

More from Yahoo! Sources

  • CNN Money
  • Consumer Reports
  • Kiplinger
  • The Motley Fool
  • Business Week
  • Wall Street Journal

Sponsored Links

Free 2010 Credit Report and All 3 Scores
Free 3-bureau Credit Report – includes Transunion, Equifax, Experian.
FreeCreditReportsInstantly.com
Live Forex Practice Account
Practice Forex Trading in Real Market Conditions with a Free Trial.
www.GFTforex.com
Financing - Bank of America®
Take Advantage Of Low Refi Rates For Home Loans Up To $3 Million.
www.bankofamerica.com
Refinance Now at 3.7% APR
$160,000 mortgage under $752/mo. Free. No Obligation. Get 4 quotes now.
MortgageRefinance.LendGo.com
Obama Urges Homeowners to Refinance
($90,000 Refinance $489/mo) See Rates - No Credit Check Req.
www.SeeRefinanceRates.com
Super Cheap Car Insurance
Get Discount Car Insurance Quotes Online – Rates from $15 / Month.
Discount-Car-Insurance-Rates.com

Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data and daily updates provided by Morningstar, Inc. Fundamental company data provided by Capital IQ. Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page. Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes. Real-Time continuous streaming quotes are available through our premium service. You may turn streaming quotes on or off. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.

Yahoo! Answers is provided for informational purposes only, and no Q&A is intended for trading or investing purposes. Yahoo! shall not be responsible or liable for the accuracy, usefulness or availability of any Q&A information, and shall not be responsible or liable for any trading or investment decisions based on such information. View Complete Answers Disclaimer.