Our oldest daughter, Cassie, graduated from college this year. I can still vividly remember the joy I felt when my wife, Susan, told me she was pregnant with Cassie. I also remember the awesome sense of responsibility that came with fatherhood, and my desire to care for Cassie, protect her, and nurture her so she could ultimately go on to lead a fulfilling life of her own.
As a father, I want to make sure she is a great person. As a father who is a CFO, I also want to make sure she is financially successful. Here is a summary of my advice to her as she embarks on the beginning of her professional career.
1. Be Mindful of Your Most Precious Asset
In life, our most precious asset is not the size of our bank account, nor our stock portfolio, nor any of the things we own. Our most precious asset is our time. Our time on this earth is a gift, and none of us know how long that gift will last. Every day that passes is one less day we have left to do what we want with our life. Once it’s gone, it’s gone forever. Our challenge, therefore, is to always be mindful of how we are spending our time. Know what you want to do with your life. Have a plan to get there. And reflect on a regular basis on how you are progressing on your journey.
2. Understand the Relationship between Time and Money
We’ve all heard the phrase, “time is money,” which to me seems to suggest we should always sacrifice our time in favor of making more money. I prefer to think of money as time. When you have enough money, you are free to spend your time as you like. Having money in the bank gives you options in the future, whereas being in debt commits your future to repayment. Interest earned on savings is like a financial tailwind helping you move faster, whereas interest owed on debts is like a financial headwind slowing you down. So, make sure the value of what you get by spending your money is worth the time it took you to make that money. This goes double for if you are borrowing money to pay for something – is it worth it once you consider the full cost of paying back the debt with interest?
3. Be Selective
When you are considering where to work, make sure you know what’s important to you in a job. Remember that time is your most precious asset. You will be investing a considerable amount of time at your job, so you want to make sure you are getting the proper return on your investment. How does the job itself line up with your skills, interests and abilities? Does the culture of the company and the work environment align well with you and your beliefs? Beyond the paycheck itself, will this job help prepare you for greater opportunities over time? Will you be challenged and have opportunities to learn and grow? Is the company itself growing and successful and will you be proud to be associated with it?
4. Manage Your Career Like a Business
A business makes money by creating value for its customers. You make money in your career by creating value for your employer. The more value you create, the more money you can command for your services. Understand how your employer creates value for its customers and in turn, how you can create more value for your employer. Businesses need to be continuously innovating and enhancing their value. You need to be continuously learning and growing your skills, so you can enhance your value. Start with understanding the core requirements of your job and knowing how your performance will be evaluated. Ask for feedback on how you are doing and what you can do to improve. As you begin to master your current role, understand your boss’s role and how they are evaluated. Ask for stretch assignments and figure out ways to help make your boss’s job easier. Before you know it, you will be asked to take on a bigger role that creates more value and brings a bigger paycheck. Rinse and repeat.
5. OK, Now the Money Stuff…
Congratulations! You’ve been hired into your first “real job.” Now what? This is my guide to jump-starting your path toward financial health, but life is about choices. Make sure you are spending your money on what is important to you.
• Automate the 50/30/20 Rule – This simple rule is a way to divide-up your after-tax income, spending 50% on needs, 30% on wants and 20% on savings and investments. Needs are limited to the basic items necessary for life (food, clothing, shelter, utilities, healthcare, transportation, etc.). Wants are discretionary items (vacations, entertainment, charity, dining out, upgraded versions of basic need items, etc.). Savings and investments are money you set aside for later (emergency fund, retirement and non-retirement savings, health savings, etc.). The key here is to “pay yourself first” by having your savings and investments automatically deducted from your paycheck, and then you are free to spend what’s left. It is much harder to achieve your savings goals if you spend first and then try to save what’s left.
• I can’t afford to save 20%. What do I do? - The sooner you can get to this ratio, the better. But you are not doomed if you can't start there immediately. Start by saving what you can and then increase your savings rate as your income increases. Look to minimally make sure you are taking advantage of any matching contributions your employer may offer (401k, HSA, etc.). Make sure you are establishing an emergency fund (3-6 months or so of your Needs expenses). And get out of credit card debt. Really take a hard look at your spending habits if you can't save at least 5-10% right out of the gates. Redeploy any cash that is freed up by paying off debts into savings before increasing spending. Flip the ratio by saving 50-80% of any bonuses or raises until you are saving at least 15-20+% of your after-tax income for the year. Your future self will thank you!!
What advice did you have for your children as they entered a significant new chapter? We'd love to hear about it in the comments below!
Samantha Heilman
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