An open letter to the Class of 2012:
To all of the recent or soon-to-be graduates, I’d just like to say — man, did you pick a terrible time to graduate. I mean, seriously. I don’t want to scare you, but while you’ve been busy playing Call of Duty and cramming for Art History, the global economy has hit a bit of a rough patch. Let’s just say that when you head out to look for your first real job, you’re going to have some company.
Between the unemployed, the underemployed and those employed against their wishes (baby boomers who put retirement on hold), competition for jobs is fierce. In fact, if I could pass on one nugget of wisdom as you head out into the world it would be from that old sage Thornton Mellon. “Don’t go. It’s rough out there. Move back in with your parents and let them worry about it.”
I am, of course, joking. It’s not that bad, and since I’m sure most of you are eager to get a job, buy a house, save for retirement and otherwise pursue the American Dream, I’ll give you the advice that I wish someone had shared with me when I was your age.
You’ve just spent four years and tens of thousands of dollars acquiring a certain set of knowledge and skills. If you’re like most people, you want to parlay that into a job doing meaningful work for generous compensation (those student loans won’t pay themselves). How best to do that? Anyone can get a job, but what if you want something exceptional?
The most practical advice I’ve come across in this area came from Scott Adams, creator of the Dilbert cartoon. He sees two paths to an exceptional career: 1) Be the very best at one specific thing (also known as the Tiger Woods approach) or 2) Be very good (top 25 percent) at two or more things. By combining these “pretty goods” you eventually create a package that is very rare and likely valuable to a potential employer.
Here is how he saw this strategy applying to his own career: “I succeeded as a cartoonist with negligible art talent, some basic writing skills, an ordinary sense of humor and a bit of experience in the business world. The ‘Dilbert’ comic is a combination of all four skills. The world has plenty of better artists, smarter writers, funnier humorists and more experienced business people. The rare part is that each of those modest skills is collected in one person. That’s how value is created.”
So as you head off into the world, it’s time to do a skills inventory. What combination of skills do you have that would prove valuable to potential employers? What skills can you add that would make you even more marketable? Are you good at public speaking? Good at sales or graphic design? Can you write software code? Can you make a fire using nothing but a stick and some tinder? Make your list, sharpen your skills and then go and find (or create) a job where what you’re good at intersects with what people are willing to pay you for.
Once you have your dream job and the money starts rolling in, you’ll need to decide what to do with it all. My advice to you is to live what I call an extravagantly modest lifestyle. I used to think that frugality was spending money only on the very basics in life. Don’t eat out. Don’t drink expensive coffee. Pinch pennies where you can. As I’ve gotten older, my position has evolved. Rather than living like Scrooge, I spend extravagantly on things that are important to me and miserly on things that aren’t.
That kind of budgeting meant that my wife and I spent more on travel last year than we did on house payments. I spent more on coffee than I did on car payments (not difficult since we drive older cars and don’t have car payments). We still saved for retirement, ate out once in awhile and added to the wardrobe now and then but, for the most part, we chose to allocate our limited resources in very intentional ways.
When deciding where to allocate money, it helps to think like an investor. Investors allocate capital and expect a Return on Investment (ROI). For me, travel has a high ROI. I get time with my family and friends. We make memories that will last a lifetime. I get to practice my photography hobby, see new places and experience new things.
Alternatively, the type of car I drive has a low ROI. I drive a Honda Accord that’s a few years old. Trading up to a BMW would give me a small bump in my ROI, but it wouldn’t be worth it to me if it meant giving up the travel. If I could easily afford both, I might do it, but for now I’m happy to drive a modest car if it means I can get the family on the road four or five times a year.
So when you get that first paycheck, outline your new budget and align your spending with your priorities. Be frugal where necessary — but don’t be afraid to spend on those things that really matter to you.
Thinking about retirement might seem a little premature in light of the fact that you haven’t even started working yet, but it’s never too early to start saving. In fact, the decisions you make and the habits you form in the next few years will likely determine whether or not you’ll be able to afford to retire at all.
You didn’t ask for a financial seminar, so I will give you all the financial advice you need to get started in just three sentences. 1) Start saving early. 2) Pay yourself first by having your savings automatically deducted from your paycheck. 3) Start small if necessary, but work toward saving at least 10 percent of your pay.
Do those things and you’ll be well on your way to financial independence. It won’t be easy, but if your college years have taught you anything, it is how to stretch small amounts of money to cover every conceivable expense.
I have just one word of warning when it comes to saving. Delayed gratification is a double-edged sword. It’s great if it’s allowing you to work toward something like saving for retirement or that trip you’ve always wanted to take. You’re giving up something good now in order to get something better later.
Where delayed gratification becomes a problem is when it is used as an excuse for life avoidance. Rather than allowing you to work toward something, it is keeping you from something. Rather than deciding what you really want out of life or pursuing big goals, you tell yourself you need a little more time or a little more money. “I’ll do that in retirement. Someday.”
Here’s the thing. The longer you wait, the less you believe yourself when you say “Someday.” Your dreams begin to atrophy. Your opportunities begin to vanish. You aim lower. You talk yourself out of things. Before you know it, it’s too late.
So by all means, save and plan for the future, but don’t go through life constantly deferring your dreams. Don’t just save the best for last. Find a balance between “now” and “someday” and you’ll have a full and meaningful life.
Well, I’ve gone on long enough. It’s time for you to embark on your new life. I wish you all the best. Go do something remarkable.
Joe Hearn is an Omaha financial planner. He can be reached at 402-331-8600 or firstname.lastname@example.org.