Congratulations, Graduate! Now, Grow Your Wealth!

Congratulations, Graduate! Now, Grow Your Wealth!
Having multiple income streams is a powerful wealth-building tool. Ghing/Shutterstock
J.G. Collins
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Congratulations, new graduate!  Now that you have your sheepskin in hand, it’s time to really grow up and start accreting personal wealth. But first, let’s assume a few things:

1. You’re not pursuing a graduate degree.

2. You have a plan to obtain whatever professional credentials or certifications you need or want.

3. You’re circumstances don’t allow you to live with your parents for a few years (a good means to save).

4. You have a job.

5. You have no money; you’re broke.  You have maybe $1,000 to your name, if that.

6. And you’re willing to sacrifice to generate personal wealth.

If all that is true, let’s move on and start accreting your wealth

Step One: Have friends.

The first and most essential step in building wealth is to have friends. If you had friends in college, work to keep in touch with the four or five with whom you are most close. Social media makes this far easier than it was even 20 years ago. But do it. And make sure they’re friends, not acquaintances or people you know just peripherally, but people you respect, you trust, and who will come running if you’re in trouble. Expect you will know them and that they will be part of your life for the next 5o or 60 years.

These are the core members of your personal network that should expand over your lifetime, adding two or three members every year. Ask your old friends to introduce you to new friends. And it should not be just people you know from work or clients or customers but people totally outside your ordinary sphere of activity.

Bill Clinton was legendary for his Rolodex (what us old folks call their “contacts list”). While Clinton it kept it up because he knew from high school that he wanted to be president after meeting President John F. Kennedy as a Boys’ Nation delegate, you'll need a network for a number of reasons. First, to help you find new work if (God forbid) you lose your job. Somebody who knows you can help recommend you if things go south at your current employer. Second, a network offers you additional opportunities that others may not know about. For example, if you’re in a professional services business or in sales, your network may generate. sales leads or new clients.

If you don’t have friends, if you had no time or no inclination to make any in college, then start making some. They can be people you meet playing sports, at the gym, volunteering, working a political campaign, or at your house of worship. (I don’t recommend bars; they’re expensive.)

But choose wisely; you want the people who are what the miltary call “pipe hitters“—that is, people who are driven to be the very best in their jobs and people who can lead. But they should also be people you’re comfortable speaking to, people who are—often—smarter than you (get used to that; you‘ll meet a lot of them in your life). But if they prove themselves trustworthy and of good character, embrace them. In addition, if they’re wealthier already, don’t try to keep up with their lifestyle; you can’t. And you’ll go broke trying to emulate them. Pass on their $1,000-a-plate fundraisers, but be of use to them in other ways as you'll want them to be of use to you, too.
Likewise, you might like other people whose company you enjoy. And you can certainly be lifelong friends with them. But the people who will help you build wealth over your lifetime are the pipe hitters. And you will be lucky if there is one pipe hitter in every 100 people you meet. Cultivate those relationships as they occur. And listen to them about whatever their expertise is—engineering, finance, computer science, chemistry, etc.—and stay atuned to developments in their fields so you can make money on them.

Step Two: Live well below your means—and watch your spending.

You know—or should calculate—what your take-home pay is or will be. There are a number of calculators online.
Plan to spend no more than 80–85 percent of your aftertax take-home pay. Further:
  • Suffer one or more roommates in a dodgy, but safe, part of town.
  • Drive a years-old, but reliable, “beater” car if you don’t have access to reliable public transit or a car pool.
  • Pay cash. Set aside enough cash for each item of your anticipated monthly spending—groceries, dry cleaning, commuting, entertainment, etc., in an accordian file  each month. When the cash is gone for that month, it’s gone. You can transfer from one pouch to another to make ends meet, but don’t carry-over one month to the next. Take cash that’s leftover at the end of the month and bank it.
Arrange to have 15—20 percent of your aftertax pay debited from your bank account into a money market fund each month. Use the first tranches of your monthly savings to build up an emergency reserve equal to six months of your take-home pay. This is your “Uh-oh” money—that is, the money you have in case your job doesn’t work out, you hate it, or your employer lays you off. This will tide you over until you find another gig.

Simultaneously with socking away the reserve fund into a safe form of savings (like a money market account), you should also avail yourself the maximum contribution to your employer’s 401(k), if it offers one, as well as a contribution to an IRA to secure your retirement. Compounding the value you invest, as soon a you can, will allow you to save less later in life when the expenses of children and home ownership occur.

Watch your spending on clothing, too. If you’re in a workplace that requires business attire, treat your clothing as an investment and take good care of it. Buy at least one very good suit for important meetings, but keep the rest of it—five to seven suits—affordable; they’re your “work clothes.” Change the moment you come home and hang your suit to air out overnight on a wooden hanger, then put it in a garment bag the next morning until the time you next wear it. Invest in a few (three or four) pairs of good, leather and leather-lined, classic-styled, sensible, dress shoes and rotate them daily. If you’re a man, buy some wooden shoe trees and use them. A good pair of men’s dress shoes, properly maintained, should last at least 10–15 years, so don’t let the sticker shock at a Johnson & Murphy throw you.  Women, stuff tissue papers in yours. They'll last longer.

Step Three: Learn to cook.

It grieves me to see young people in my community ordering meals from Uber Eats, Door Dash, and the like. They’re spending probably at least three to four times the cost of what they need to on dining and food. And they’re likely not getting a balanced diet, either. It’s a habit acquired, presumably, in their college days when they likely had no access to cooking facilities in their dormitories.
But as a new graduate presumably living in an apartment with cooking facilities, you should avail yourself fully of their use.  There are a number of dishes that can be prepared in advance on your day off or after work—meatloaf, Chicken Marsala, lasagna —scores of others—and kept in Tupperware or casserole dishes, and then reheated in a microwave during the week. You can swap your cooking with  friends or neighbors for their cooking to keep it interesting.
Cooking with your friends or roommates and doing potluck suppers with guests is a also a great, inexpensive, way to socialize, too.

Step Four: Buy whole life life insurance.

At a young age, whole life policies are relatively cheap. Buying it young saves you the expense of buying it at a higher cost when you’re married and have children. Life insurance also allows you to borrow against its value, tax-free, so that when equity markets collapse, as they did in 2008, and you may need to access cash, you can do so by borrowing against your life insurance without selling your equity or bond portfolio. Term insurance is fine, as far as it goes, but once you survive the term, all you have to show for it is a set of cancelled checks. When you die, your family gets nothing.

Step Five: Use leverage.

Pay your bills on time and protect your credit rating like it’s your life; in some respects, it is—at least the quality of your life. Get a no-fee credit card and pay off the entire balance every month. If you must carry a balance for an unavoidable expense (e.g., medical or dental care), pay it off as quickly as you can. You need a solid credit rating to take advantage of lower rates on other borrowings you will need for home ownership and investments. But never, ever, borrow to consume. Don’t put a vacation on your Visa card. Borrow only when absolutely necessary or to acquire an income-producing asset or an asset you foresee will increase in value or that will throw off cash flow. (And, for heaven’s sake, stay away from crypto as an investment.) The old saw that “Whoever dies with the most toys, wins!” is a lie. Whoever dies with the most valuable assets, wins.

Step Six: Get a side-hustle.

After you are acclimated to your workplace, in a year or two, and you have saved some cash, find another, secondary, source of free cash flow. This can be a part-time job that doesn’t conflict with your regular employment, or, better, a side business of your own or one you own and manage with some of your pipe-hitter friends. Maybe it will be a huge hit; maybe it will be so-so; maybe it will fail and you'll lose the money you invested—but you won’t know how it comes out until you try it. If the side hussle has—or you can foresee will have—net positive cash flow, consider taking it on, use leverage (borrowings) to buy it or improve it using the cash flow to pay off  part of the acquisition debt. But put the business in a limited liability company (LLC) to avoid personal liability if the business goes bust.

Step Seven: Surround yourself with great advisers

Some of these will be among your pipe-hitter friends. You'll need a good CPA, a good business lawyer, and a good financial advisor, and you should keep close relationships with them throughout your lifetime. And never underestimate the value of good books as “advisers.” Everyone I know who has done well is a voracious reader. So, too, are the pipe hitters.

In Summary

Overall, your objective, while young, should be to accrete wealth as much as possible and as quickly as you can to take advantage of compounding wealth  as you grow older. Don’t take unmanageable risks, but don’t be cowed by risk, either. Youth is the time to take risks and make mistakes. When you’re married and have children, you‘ll need to become more risk averse. Hopefully, by then you’ll be financially secure.

Do well. And while you’re at it, do good, too. Give of your time and money to a suitable charity.

J.G. Collins
J.G. Collins
Author
J.G. Collins is managing director of the Stuyvesant Square Consultancy, a strategic advisory, market survey, and consulting firm in New York. His writings on economics, trade, politics, and public policy have appeared in Forbes, the New York Post, Crain’s New York Business, The Hill, The American Conservative, and other publications.
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