Wednesday, June 11, 2008

Money Tips for New Grads

I'm Jan Dahlin Geiger, CFP®, MBA , author of "Get Your Assets in Gear! Smart Money Strategies." A Certified Financial Planner™ practitioner since 1988, I've been quoted in the Wall Street Journal, MSN Money, USA Today, Reader's Digest, and SmartMoney Magazine. I have been on the board of directors of the Financial Planning Association (Atlanta chapter) and practice as a fee based planner with a Registered Investment Advisor firm. Additionally, I was just selected by Atlanta Magazine for their "5-Star Wealth Managers" list which will be published in their October, 2008 issue.

This is a topic near and dear to my heart since my kids are 23 and 25 and recent college graduates.

When I teach young people, I start by giving them the big picture so they will be motivated to take the necessary steps. The steps by themselves are pretty boring, but if you know they are the path to riches, then you'll be more willing to take them.

I start by teaching the rule of 72. Take 72 and divide it by your interest rate and that's how long it takes for money to double. I explain that the long term average return on the stock market is 10-11%, so let's assume money will double every 7 years. Then I use my 25 year old son as an example. He has $40,000 saved. If he doubles his money every 7 years, his $40,000 will grow to $40,000,000 by the time he is the same age as his grandfather is now (95).

Here's the example:

25 $40k

32 $80k

39 $160k

46 $320k

53 $640k

60 $1,280 k

67 $2.5 m

74 $5 m

81 $10 m

88 $20 m

95 $40 m

Most people sit up and pay attention at this point. Then they are ready to learn how to make it happen. For starters, you just have to remember three key things:

1. No debt

2. Save money

3. Invest wisely

Debt is just a report card that says you spent more than you earned. Anyone knows you can't possibly spend more than you earn and ever hope to get ahead. So rule one is stay out of debt because this means you are spending less than you earn.

Then since you are spending less than you earn, you can begin to save money. Set 10% as a minimum target for saving for the future so that one day you can live the life of your dreams without needing a paycheck.

Then once you begin to save, you have to learn to invest wisely. It is imperative to learn how to invest in the stock market as this is how most middle class millionaires are created. The best way to do this is with mutual funds. I personally am a multi millionaire and all of my money is in mutual funds. They are such an excellent vehicle for the typical investor.

Finally, learn how to track your spending. If you ever want to be rich, a spending plan is an absolute, no way around it, requirement. A spending plan is just telling your money where to go instead of wondering where it went. All rich people I know got there by using a spending plan.

Goal setting is crucial for success in any area of you life. Money is no different. A spending plan is just writing down a series of small goals for your money, then tracking your progress on those goals.

Finally, attitude is essential. If you think handling your money well will be hard, it will be. If you tell yourself it can't be all that hard because lots of other people have learned how, then you're ready to learn everything you need to learn.

In my opinion, if someone can remember these 5 key points, they will be successfully launched with their money:

1. No debt

2. Save 10%

3. Invest wisely

4. Track your spending

5. Make it easy with a good attitude

Best regards,

Jan Dahlin Geiger