I graduated from college in 1991 with a degree in psychology and a minor in English lit. I was one course shy of a second minor in speech comm. With credentials like these, it’s no surprise that my first job out of school was knocking on doors, selling crummy insurance to little old ladies in Eastern Oregon. I hated the job, but I could not quit. I was trapped by debt.

After I was hired, I had gone a little crazy. Because I would soon be earning a steady income, I figured it was safe to spend some of my future earnings. My car — a silver 1983 Ford Escort — was a piece of junk. I didn’t think it made sense to repair it. Fortunately, the bank gave me a loan for a new car. I bought a 1992 Geo Storm. Then, using credit cards, I bought an entire wardrobe of business attire and a Super Nintendo. “It’s okay,” I kept telling myself. “I have a job. I’ll be able to pay for this.”

Now, with the benefit of hindsight, my mistakes are glaring and obvious. If I had the ability to speak with the J.D. of 1991, I would give him just three pieces of financial advice:

  1. Establish an emergency fund.
  2. Avoid consumer debt.
  3. Save for retirement.

There’s more to personal finance, of course, but these three tips will get a young person started on the path to financial freedom.

Establish an emergency fund

I was 35 years old before I learned the power of an emergency fund. If I had an emergency fund in 1991, I could have repaired my Ford Escort instead of taking out a loan to buy a new car. If I had an emergency fund, I would not have been so tied to my job — I would have been able to afford to quit.

Recent graduates should establish a rainy day fund as soon as possible. Save $1,000 to start — you can add more later as your income and responsibilities increase. This money is for emergencies only. It is not for beer. It is not for shoes. It is not for a Playstation 3. It’s to be used when your car dies, or when you break your arm in a touch football game.

Keep this money liquid, but not immediately accessible. Don’t tie your emergency fund to a debit card. Don’t sabotage your efforts by making it easy to spend the money on non-essentials. Consider opening a high-yield savings account at an online bank. When an emergency arises, you can easily transfer the money to your regular checking account. It’ll be there when you need it, but you won’t be able to spend it spontaneously.

Think of an emergency fund as self-funded insurance — insurance against Murphy’s Law. Whenever you tap into this account, replenish it as soon as possible.

Avoid consumer debt

Now that you’re out of school and in the “real world”, you’ll be tempted to leap headlong into the American way of life. You’ll want the American Dream, and you’ll want it now. You’ll see the stuff your parents have, and think that you should have the same things.

But your parents didn’t start with that stuff. They worked hard to get it. When they graduated from school, they didn’t have much either. They were in the same place you are now. The key to avoiding consumer debt is to resist lifestyle inflation as much as possible.

  • Understand the pros and cons of credit cards. If you use them, pay your balances every month. If you can’t pay cash for something, don’t charge it. A credit card is a convenience, not a license to spend.
  • Don’t buy things you cannot afford. Want a new HDTV? Fine. Just don’t buy it on credit. Save up for it. You can wait a few months. If you’re tempted to buy things simply because you have credit, I urge you to cut up your cards.
  • Don’t try to have everything at once. It took your parents decades to get what they have. Take it easy. Get things slowly. Don’t adjust your lifestyle upward until you establish the saving habit.

Avoiding debt will put you ahead of your peers right away.

Save for retirement

You may be thinking, “That’s crazy! Retirement? I’m 22 years old. I’m not going to retire for 40 or 50 years.” Exactly. That’s exactly why you should start saving now.

It doesn’t take much. Just $200/month — about $2500/year — is all you need to have a million dollars saved by the time you retire (assuming average returns and inflation). But let’s say that you put off saving for retirement. Let’s say that you do what I did, and wait until you’re 37 years old to begin saving. Assuming average numbers, that 15 year delay will make your money worth only $300,000 at retirement. That, my friends, is the power of compounding.

Setting up a retirement program will never be easier for your than it is now. You’re used to frugality. If you simply funnel some of your increased earnings automatically into a Roth IRA, you won’t notice a difference in your lifestyle, yet your retirement savings will have an opportunity to grow and grow.


When you find your first job, you’re going to be enamored with your new salary. If you’ve been working for peanuts on campus, $30,000/year (or more!) is going to seem like a lot of cash. You’ll be tempted to start spending immediately. This is a dangerous trap. A few years of frugality now can lead to financial freedom in the long run.

The three steps I’ve described here are easy, but they’re important. Most people never do these things. Most people are broke, and they don’t know why. You don’t have to be one of these people. It takes some effort, but you can acquire wealth. It won’t happen overnight. Despite what you might have heard from all the spam e-mail you get, it’s not possible to get rich quickly, except by luck. But anyone can get rich slowly — it just takes time, discipline, and smart choices.

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