Financial Independence Checklist for College Graduates (My path for my kid — the first 10 years)

Raw Text

by jlcollinsnh 95 Comments - Updated: May 2, 2023

Intro by JL’s Team

As college seniors across the country receive their diplomas this week, we thought it would be the perfect time to resurface one of JL’s most popular posts. In this post, JL offers advice for his daughter a year before her college graduation.

If you’re a graduating senior who wants the avoid the debt trap and carve your own path to financial independence, you’ve got this. It doesn’t have to be complicated.

If your child, niece, friend, neighbor is graduating, send them this post. It may be the most valuable graduation gift they receive, because financial independence is so much more than money—it’s the opportunity to live your life on your own terms.

*******************************

A year from now my daughter graduates from college. Here’s the early life path I suggest to her:

Avoid debt. Nothing is worth paying interest to own.

Avoid fiscally irresponsible people and certainly don’t marry one.

Spend the next decade or so working your ass off building your career and your professional reputation.

Spend that same decade or so living like the college student you just were.

Don’t get trapped by an expanding lifestyle.

Follow the Simple Plan to Wealth .

Save and invest at least 50% of your income. Put this in VTSAX or the equivalent  as we discussed here .

Fund any 401k plan you are offered.

Fund your IRA.

If you do this for the next ten years or so, you’ll be financially independent.

If you save more than 50%, you’ll get there sooner. If not it will take a bit longer. (*See the chart below for an idea of how long)

If you get lucky with the market you’ll get there sooner. If not it will take a bit longer.

During this accumulation phase, celebrate market drops . During these each dollar you invest buys more shares.

Sometime in your early to mid 30s two things will happen: Your career should be hitting its strongest surge and you should be financially independent (FI).

Once 4% of your assets can cover your expenses, consider yourself FI.

Put another way, FI = 25x your annual expenses.

That is, if you are living on $20,000 you are at FI with $500,000.

If, like Mike Tyson used to, you are living on $400,000 a month/4.8 million a year, you’re going to need 120 million.

As you can see, being FI is every bit as much about controlling your needs as it is building your assets.

Once you are financially independent, begin living on your investments.

Now you can decide if you are still having fun and want to continue your career. Or possibly try something new.

If you keep working, invest 100% of your earnings. You are living on your investments now.

This will, of course, dramatically accelerate the growth of your assets.

This growth of your assets will, in turn, accelerate the growth of the spendable dollar amount 4% represents.

Now, should you so choose, is the time to begin expanding your lifestyle. Just be sure to keep it at 4% of your holdings.

Now is also the time to think about  giving like a billionaire .

If you are going to have children, now is the time. You are still plenty young enough, financially secure and with FI you can arrange your affairs in such a fashion as to give them the time they deserve.

If you are so inclined, now is also the time to consider buying a house.

But don’t be in a hurry. Remember, houses are almost always  lousy investments .

Buy one only when you can easily afford it and if it provides a lifestyle change you want. Kids and school district, for instance.

As long as you are working, VTSAX will serve all your investing needs. You are now investing 100% of your income so those times the market plunges are even less cause for concern. Your money buys more shares. During this accumulation phase, the ups and downs of the market matter not at all. Pay them absolutely no mind. Just keep adding to the pot.

Once you decide you are done working, diversify into  25% Bonds, 75% Stocks (VTSAX)

By the way, bullet point #3 is not meant to suggest you must be some sort of office drone. Think of your career in the most expansive of terms. The possibilities are endless. You might take those low-cost college living skills you’ve honed and use them to pursue any number of new adventures. Like this guy:

Ken Ilgunas  and his book

You’re young, smart, healthy and tough. By your 30s you’ll have  F-You Money  and you should have a blast getting there. Once you’ve got it, it will continue to expand, as will your personal options. Your future’s so bright it hurts my eyes to look at it.

That’s what I have told and will continue to tell her.

So, if you are also in college or a few years out and wanted to know what your kindly old Uncle jlcollinsnh suggests, there you go. Like everything we talk about on this blog, it is all about expanding your opportunities in life.

If you are a bit more seasoned, don’t despair. Think of it as a ten-year plan you can start right now. It’s never too late. It took me decades to figure this stuff out. Like mine, your road has likely already had more bumps than those who follow this guide will endure. But those are done. It is your future that matters and that starts, for all of us, right now.

It also helps to keep a healthy perspective on just how lucky we all are. My new pal Buck is a kindred spirit and at the end of his wealth manifesto he offers this astute observation:

“Let’s face it, you are already ‘wealthy’ by almost any worldly definition so let’s keep this in perspective.  Just by reading this post we know you are:

In a sheltered, warm place with connectivity to the Internet. Clothed (although maybe I shouldn’t assume too much). Literate and proficient in one of the most influential languages in the world. Probably not too concerned about from where your next meal is going to come.”

Personally I had never thought of, and especially like, bullet point #3.

Of course you’ll want to read the rest of this blog, and maybe a couple of others. You will find some exceptional ones in the blogroll to the right. My pal Darrow writes one of these and in fact he has a brand new book just out:

*Here’s the chart mentioned above and it is one of the cool things in the book:

These numbers assume an 8% annual investment return and that you’ll live on the classic 4% withdrawal rate which implies a stash of 25x your annual needs. So, not a gospel but a guideline.

My daughter will also get hers free, when I hand her my old-school print copy.

Addendum 1:

How I failed my daughter and a simple path to wealth

Addendum 2:

Cultivate your ChaChing! Instinct

Addendum 3:

This is a great example of the right way to use and think about VTSAX

Read Next from JL

Subscribe to JL’s Newsletter

Important Resources

Talent Stacker is a resource that I learned about through my work with Jonathan and Brad at ChooseFI , and first heard about Salesforce as a career option in an episode where they featured Bradley Rice on the Podcast. In that episode , Bradley shared how he reached FI quickly thanks to his huge paychecks and discipline in keeping his expenses low. Jonathan teamed up with Bradley to build Talent Stacker , and they have helped more than 1,000 students from all walks of life complete the program and land jobs like clockwork, earning double or even triple their old salaries using a Salesforce certification to break into a no-code tech career.

Credit Cards are like chain saws. Incredibly useful. Incredibly dangerous. Resolve to pay in full each month and never carry a balance. Do that and they can be great tools. Here are some of the very best for travel hacking, cash back and small business rewards.

Empower is a free tool to manage and evaluate your investments. With great visuals you can track your net worth, asset allocation, and portfolio performance, including costs. At a glance you'll see what's working and what you might want to change. Here's my full review .

Betterment is my recommendation for hands-off investors who prefer a DIFM (Do It For Me) approach. It is also a great tool for reaching short-term savings goals. Here is my Betterment Review

NewRetirement offers cool tools to help guide you in answering the question: Do I have enough money to retire? And getting started is free. Sign up and you will be offered two paths into their retirement planner. I was also on their podcast and you can check that out here: Video version , Podcast version.

Tuft & Needle (T&N) helps me sleep at night. They are a very cool company with a great product. Here’s my review of what we are currently sleeping on: Our Walnut Frame and Mint Mattress .

Vanguard.com

Filed Under: Life , Money

Single Line Text

by jlcollinsnh 95 Comments - Updated: May 2, 2023. . Intro by JL’s Team. As college seniors across the country receive their diplomas this week, we thought it would be the perfect time to resurface one of JL’s most popular posts. In this post, JL offers advice for his daughter a year before her college graduation. If you’re a graduating senior who wants the avoid the debt trap and carve your own path to financial independence, you’ve got this. It doesn’t have to be complicated. If your child, niece, friend, neighbor is graduating, send them this post. It may be the most valuable graduation gift they receive, because financial independence is so much more than money—it’s the opportunity to live your life on your own terms. ******************************* A year from now my daughter graduates from college. Here’s the early life path I suggest to her: Avoid debt. Nothing is worth paying interest to own. Avoid fiscally irresponsible people and certainly don’t marry one. Spend the next decade or so working your ass off building your career and your professional reputation. Spend that same decade or so living like the college student you just were. Don’t get trapped by an expanding lifestyle. Follow the Simple Plan to Wealth . Save and invest at least 50% of your income. Put this in VTSAX or the equivalent  as we discussed here . Fund any 401k plan you are offered. Fund your IRA. If you do this for the next ten years or so, you’ll be financially independent. If you save more than 50%, you’ll get there sooner. If not it will take a bit longer. (*See the chart below for an idea of how long) If you get lucky with the market you’ll get there sooner. If not it will take a bit longer. During this accumulation phase, celebrate market drops . During these each dollar you invest buys more shares. Sometime in your early to mid 30s two things will happen: Your career should be hitting its strongest surge and you should be financially independent (FI). Once 4% of your assets can cover your expenses, consider yourself FI. Put another way, FI = 25x your annual expenses. That is, if you are living on $20,000 you are at FI with $500,000. If, like Mike Tyson used to, you are living on $400,000 a month/4.8 million a year, you’re going to need 120 million. As you can see, being FI is every bit as much about controlling your needs as it is building your assets. Once you are financially independent, begin living on your investments. Now you can decide if you are still having fun and want to continue your career. Or possibly try something new. If you keep working, invest 100% of your earnings. You are living on your investments now. This will, of course, dramatically accelerate the growth of your assets. This growth of your assets will, in turn, accelerate the growth of the spendable dollar amount 4% represents. Now, should you so choose, is the time to begin expanding your lifestyle. Just be sure to keep it at 4% of your holdings. Now is also the time to think about  giving like a billionaire . If you are going to have children, now is the time. You are still plenty young enough, financially secure and with FI you can arrange your affairs in such a fashion as to give them the time they deserve. If you are so inclined, now is also the time to consider buying a house. But don’t be in a hurry. Remember, houses are almost always  lousy investments . Buy one only when you can easily afford it and if it provides a lifestyle change you want. Kids and school district, for instance. As long as you are working, VTSAX will serve all your investing needs. You are now investing 100% of your income so those times the market plunges are even less cause for concern. Your money buys more shares. During this accumulation phase, the ups and downs of the market matter not at all. Pay them absolutely no mind. Just keep adding to the pot. Once you decide you are done working, diversify into  25% Bonds, 75% Stocks (VTSAX) By the way, bullet point #3 is not meant to suggest you must be some sort of office drone. Think of your career in the most expansive of terms. The possibilities are endless. You might take those low-cost college living skills you’ve honed and use them to pursue any number of new adventures. Like this guy: . Ken Ilgunas  and his book. You’re young, smart, healthy and tough. By your 30s you’ll have  F-You Money  and you should have a blast getting there. Once you’ve got it, it will continue to expand, as will your personal options. Your future’s so bright it hurts my eyes to look at it. That’s what I have told and will continue to tell her. So, if you are also in college or a few years out and wanted to know what your kindly old Uncle jlcollinsnh suggests, there you go. Like everything we talk about on this blog, it is all about expanding your opportunities in life. If you are a bit more seasoned, don’t despair. Think of it as a ten-year plan you can start right now. It’s never too late. It took me decades to figure this stuff out. Like mine, your road has likely already had more bumps than those who follow this guide will endure. But those are done. It is your future that matters and that starts, for all of us, right now. It also helps to keep a healthy perspective on just how lucky we all are. My new pal Buck is a kindred spirit and at the end of his wealth manifesto he offers this astute observation: “Let’s face it, you are already ‘wealthy’ by almost any worldly definition so let’s keep this in perspective.  Just by reading this post we know you are: In a sheltered, warm place with connectivity to the Internet. Clothed (although maybe I shouldn’t assume too much). Literate and proficient in one of the most influential languages in the world. Probably not too concerned about from where your next meal is going to come.” Personally I had never thought of, and especially like, bullet point #3. Of course you’ll want to read the rest of this blog, and maybe a couple of others. You will find some exceptional ones in the blogroll to the right. My pal Darrow writes one of these and in fact he has a brand new book just out: . *Here’s the chart mentioned above and it is one of the cool things in the book: . These numbers assume an 8% annual investment return and that you’ll live on the classic 4% withdrawal rate which implies a stash of 25x your annual needs. So, not a gospel but a guideline. My daughter will also get hers free, when I hand her my old-school print copy. Addendum 1: How I failed my daughter and a simple path to wealth. Addendum 2: Cultivate your ChaChing! Instinct. Addendum 3: This is a great example of the right way to use and think about VTSAX. Read Next from JL. Subscribe to JL’s Newsletter. Important Resources. Talent Stacker is a resource that I learned about through my work with Jonathan and Brad at ChooseFI , and first heard about Salesforce as a career option in an episode where they featured Bradley Rice on the Podcast. In that episode , Bradley shared how he reached FI quickly thanks to his huge paychecks and discipline in keeping his expenses low. Jonathan teamed up with Bradley to build Talent Stacker , and they have helped more than 1,000 students from all walks of life complete the program and land jobs like clockwork, earning double or even triple their old salaries using a Salesforce certification to break into a no-code tech career. Credit Cards are like chain saws. Incredibly useful. Incredibly dangerous. Resolve to pay in full each month and never carry a balance. Do that and they can be great tools. Here are some of the very best for travel hacking, cash back and small business rewards. Empower is a free tool to manage and evaluate your investments. With great visuals you can track your net worth, asset allocation, and portfolio performance, including costs. At a glance you'll see what's working and what you might want to change. Here's my full review . Betterment is my recommendation for hands-off investors who prefer a DIFM (Do It For Me) approach. It is also a great tool for reaching short-term savings goals. Here is my Betterment Review. NewRetirement offers cool tools to help guide you in answering the question: Do I have enough money to retire? And getting started is free. Sign up and you will be offered two paths into their retirement planner. I was also on their podcast and you can check that out here: Video version , Podcast version. Tuft & Needle (T&N) helps me sleep at night. They are a very cool company with a great product. Here’s my review of what we are currently sleeping on: Our Walnut Frame and Mint Mattress . Vanguard.com. Filed Under: Life , Money.