5 Money Lessons for Fresh Graduates
There are 5 things WE want to impart to all specially to fresh graduates who are just starting to earn from their first job:
It’s been over more than 10 years since we started our journey to financial freedom. So, here are the
5 Money Lessons you must learn every 10 Years
1. Plan your retirement as early as now. But first let’s all be clear with the definition of retirement.
Retirement, for me, doesn’t only mean you stop working because you’re grey and old. It’s when you have a choice to work or not to work. It’s when you work because you love what you’re doing and not because you need money.
Decide what age you want to retire. Do you really want to work all your life? Retirement is not something that happens when you’re 65. If you plan it now, in your 20s, you can retire early. By 40? 50? Even 35? Again, it’s not to say that at age 35, you decide to bore yourself to death. Retirement is having a choice
Try to make ponder of the following:
- Do I want to take one year off to travel the world?
- How does it feel live by the beach?
- What can I give back to society? Join a Charity movement, I guess?
- When can I wake up every day just to enjoy my hobbies?
- Will I ever experience my dream lifestyle?
Work on how much money you want to have by your desired retirement age. You are able to retire because money is no longer an issue, although of course you would need some source of income to fund your dream lifestyle. Compute how much you need to sustain your dream lifestyle every month. I’m not just talking about savings in the bank or pension from the government. Consider building your monthly passive income, which I’m going to talk about in a while.
I also have another term for retirement—financial freedom.
2. You can earn from multiple sources of income. Who said your job should be your only source of income? There are three types of income: earned income, portfolio income, and passive income. Your monthly salary from being an employee is earned income since you generate that from working. This can also be from owning a small business, doing consultancy, or any other activity that pays based on time and effort spent.
Start Building your Portfolio. This is an income is any income generated by selling an investment at a higher price than what you paid for. It can be through paper assets such as stocks, bonds, mutual funds, CDs, T-bills, currencies. It can be through buying and selling real estate or other assets like cars, jewelry, collections that have appreciated in value.
Create Passive Income -is money you earn without doing anything because the assets you have acquired are making money for you. If you own a business that’s running and earning independently of you, then that’s passive income.
On the other hand, having a real estate properties, you can earn rental income—again that’s passive. If you have created and sold intellectual property—books, patents, music—you can earn royalties, another passive income.
Most of us were brought up thinking there’s only earned income. Wouldn’t it be nice if you work hard eight hours a day for money (earned income) but your money works hard for you 24 hours a day (portfolio or passive income)?
3. Be conscious of the ‘instant gratification’ trap. According to a study done by Visa Asia, less than two thirds of Millennials invest for the future. Among Filipinos, shopping is the key activity (18 percent) that Millennials save for.
Change your Mindset. Also, Filipinos put aside 12 percent of their disposable income for electronic gadgets. Because of this instant gratification trap, there’s failure to think long term—retirement, building portfolio and passive income, financial freedom. With this mindset, there’s a tendency to live from paycheck to paycheck. Usually this results to zero savings.
Manage your Finances. Worse than negative savings is getting into bad debt. The usual twin culprit of instant gratification is credit card debt. Since credit cards are easily distributed and very accessible nowadays, without proper education, a lot of people think it’s an extension of their wallet. There’s a mindset that it’s okay to just pay minimum every month without realizing that interest rates are compounded; that these compounded interests can end up higher than the actual purchase made. Who reads the fine print anyway?
The power of owning a credit card comes with a huge responsibility of managing it. In my book, I Wish They Taught Money in High School So I’m Not Dependent On My Paycheck, I discussed how credit cards, instead of being a trap, can be your best friend.
4. Pay yourself first. The not-so-secret secret to becoming rich is to follow this formula: Income-Savings=Expenses. Which simply means that as soon as you receive your earned income, make sure you set aside a certain percentage as your savings (or investment) and live with whatever is left. Not the other way around: Income-Expenses=Savings.
Unfortunately, more people are following the latter. They spend first, pay the bills first, and save whatever is left—which is fine if there is anything left.
But almost always, there would be nothing left or, worse, that your expenses are greater than your income, which always results in debt. You do not want to feed the cycle of living from paycheck to paycheck. According to Bankrate.com, one in four Millennials has more debt than savings.
5. Invest, invest, invest. Gone are the days the term “investment” is only for millionaires. Nowadays, investment vehicles are more accessible and easily available. One can open a mutual funds account or stock market account with only P5,000.
Old school thinking is to save money in the bank, but with the rising inflation, it’s better to put them in investment vehicles that will yield higher interests. So when you pay yourself first, turn your savings to investments.
Invest for the long term. Don’t invest now and pull out next month. Your invested money can only grow over time. This is what you call delayed gratification.
Make investment a habit. Don’t just invest one-time. Since you’re paying yourself every month, invest every month. If you do decide to start with P5,000, how about top up with P1,000 every month?
You may not see the fruits of your discipline a year from now but come retirement age (as you’ve planned), you will thank yourself for sticking it out with this habit.
These five money tricks are just the tip of the iceberg. There are so many opportunities out there to start your journey toward financial freedom. But you can easily start with these now.
When you’re in your 20s and just starting to earn, you probably plan to save and invest next time, when your paycheck is bigger.
It’s not how much money you make, however, it’s how much money you keep. It’s the discipline and the knowledge that will get you your dream lifestyle, your early retirement, your financial freedom. << check out our books, this will surely help!