School’s Out…Freedom!
As we approach mid-May, it brings back fond childhood memories. The snow had melted, the sun was shining, soccer had begun, and freedom was in the air as school let out.
In the coming weeks, many students will graduate from high school or college. It’s an incredible season with rich opportunity. The world is truly in front of you. For many, it’s both exciting and nerve-wracking.
So many important decisions are made in the years immediately following graduation: your first job, your ultimate career path, where you choose to live, your spouse, the friends you surround yourself with, and your spiritual journey.
You might be a graduate yourself, or a parent or grandparent of a graduate. Perhaps you simply know one.
I’d like to offer a financial framework for the young graduate in your life so that they have an effective way to approach money during these formative years.
Framework for Graduates
- Launch
At dinner recently, my daughter was playing with her water bottle at the table. She knows she shouldn’t do this, and sure enough, the bottle slipped off the table and slammed onto the floor. If you’re a parent, you know that sound – it’s terrible.
Instinctively, I reached down to grab it, but before I could, my wife grabbed my wrist. “Blaine, don’t grab it.”
The only way my daughter will learn is if she is forced to get out of her chair and grab it herself.
The School of Hard Knocks
A new graduate is in a unique position. There is a newfound freedom, yet life up to this point has perhaps been defined by dependence on parents or other adults.
In Genesis 2:24, the Bible describes the principle of “leaving and cleaving” in marriage:
“Therefore a man shall leave his father and mother and hold fast to his wife…”
A similar principle applies at graduation. Young adults need to experience a financial life apart from their parents to set themselves up for future success.
A few practical tips…
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- Do your own taxes: Don’t let your parents do them for you. Taxes can be confusing and intimidating, but learning how they work is one part of the “adulting” process.
- Pay your own bills: Set up your own rent, utilities, phone plan, insurance, and subscriptions. When money automatically leaves your account, you begin to feel the weight of decisions. It forces prioritization and quickly reveals the difference between wants and needs.
- Build a basic emergency fund: After college, there may be a tendency to think “it’s okay if I drain my savings, because Mom & Dad will back me up if my transmission goes out.” Create a safety net yourself rather than relying on others to be your safety net.
- Learn the Power of Saying “No”
With the rise of social media, social pressure has never been greater. FOMO (Fear of Missing Out) is a real challenge. There are two paths:
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- The graduate who constantly succumbs to FOMO will struggle to achieve financial freedom, forever running on a treadmill trying to keep up with others.
- The graduate who learns the power of saying “no” gains a superpower called delayed gratification. This will bring more financial peace than any outsized investment return or work bonus.
- Learn the Fundamentals
Nearly every sport starts with the basics of footwork.
A basketball player builds a consistent, effective jump shot by establishing a strong base with his/her feet.
Learning the basics of footwork may feel boring to someone who just wants to shoot three-pointers all day, but without this, the shots won’t fall.
The same is true with finances.
Before learning how to master trend-following strategies or 1031 exchanges, understand the fundamentals:
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- Track your spending
- Understand your paystub
- Learn how credit scores work
- Review your employer benefits
- Grasp the time value of money
If in doubt, remember this simple framework:
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- Spend less than you earn
- Save as much as you can
- Don’t do anything stupid
That last one is easier said than done.
- Cash is King in Your 20’s
Many investors have too much cash sitting on the sidelines.
For those in their 20’s, however, it’s hard to have too much cash.
Between buying an engagement ring, purchasing a car, putting a down payment on a first home, and paying off student debt, early adulthood demands liquidity.
Rather than optimizing and maximizing every single retirement account or tying money up in illiquid investments, keeping cash or investments readily available is often the wise move in your 20’s.
- Don’t Stress Over Investment Returns
Assume you have $10,000 invested and earn a 7% return; that’s $700 in a year.
Now imagine spending 100 hours tweaking your strategy and boosting returns to 8%. Congratulations, you’ve earned an extra $100 ($1 per hour for those keeping track).
Mathematically, until you build assets, investment returns simply don’t move the needle. Yes, compounding is important, and starting early matters… but obsessing over returns in the early years misses the bigger picture.
Focus on building the asset base first. Building the asset base comes down to a simple formula. Maximize inflows (income) and minimize outflows (spending).
- Don’t Follow Financial Advice on Social Media.
That’s it. Nothing more needs to be said.
- Begin Giving Now
Most young graduates feel poor. I’m still telling you to give anyway.
It might feel backwards, but giving money away breaks the power money can have over you.
By giving voluntarily, you’re telling money, “I direct where you go – not the other way around.”
Whether it’s $1,000 a month or $5 a month, the amount isn’t what matters. It’s the habit and psychological benefit of being in control.
- Take Advice
Ecclesiastes 4:13 says, “Better was a poor and wise youth than an old and foolish king who no longer knew how to take advice.”
Find a mentor. Learn from your boss. Ask your parents how they navigated their 20’s.
In talking and listening to those who have gone before you, you’ll obtain wisdom you could never find in a textbook (or an AI Large Language Model).
Graduation
The season after graduating creates so many opportunities and challenges along the way.
Remember: your financial journey is a marathon, not a sprint.
Social pressure and FOMO will try to convince you that you need to be a millionaire overnight – don’t fall into the trap! Financial freedom or “work optional” is not the goal in these early years.
Just as a contractor wouldn’t build a house without first establishing the foundation, setting your financial “base” in your 20’s is the most important thing.
Walking Alongside You
If this framework resonated with you, we’d love to help.
If you are a child of a TBG client and graduating soon, know that a Private Wealth Advisor would be happy to speak with you to navigate this new season.
If you know someone who might benefit from this message, feel free to forward it along.
As always, reach out with any questions.
Trevor Cummings
PWA Group Director, Partner
