Although I am often asked to speak to recent grads, I have never been asked to speak at any graduations. But if I were, I imagine I would deliver something along the lines of this speech.

Today is part 2. To see the entire speech released so far, click here and read from the bottom up.

Rule 1: Tell your money to go to work.

As I said, before long you’ll be in the workforce. Yes, even those graduating at the very bottom of this grand institution will eventually receive job offers. And when you start working, you’ll begin to receive a paycheck. From that point on, for the rest of your life, you’ll have two choices. And trust me, they are choices. You can choose to either spend less than you make or you can choose to spend more than you make. If you spend more than you make, you’re taking on debt. That’s a fact. Think about it. It’s definitional: if you’re spending money you don’t have, you’re borrowing it. If you borrow money, you owe money to someone. And since the real world is full of people not as nice as your parents, they’ll charge you for the right to borrow money from them. That means that you owe not only what you borrowed, but also interest.

Graduates, interest is important. It’s a bold-faced term.

Of course you can choose to receive interest instead. You go down that path by simply spending less than you make. When you do so, you’re saving. When you put your savings into a savings account, it earns interest. That interest goes to you. It’s your money, and it’s money you didn’t have to work for. It’s money you receive simply because you put some of your money to work for you.

You will spend most of the next forty years working. Most of you will work hours longer than 9 to 5, and many of you will even work more than five days a week. And you will do this not for a semester or two, not for a year or two, but for decades. Why? Hopefully because you like what you do but, for most people, you will do it for the money.

Wouldn’t it be nice to receive money other than by working for it? By having it work for you?

You can choose to pay interest or to receive it. There will be many hard choices in life. This is not one of them. Choose to have your money go to work.

The earlier you take advantage of this lesson the more important it will be, thanks to the miracle of compounding interest. Let’s say that from the time you turn 21 years old, you save just $10 a day. If so, you can reach age 65 with about $1.4 million dollars. I hope it sounds easy. It is easy. Ten bucks should be a lay-up for any employed 21 year-old. One typically with no family to support, no large home, and relatively low taxes to pay.

In fact, it will arguably never be easier for you to save than right now. Look at it this way: last year, what did you make? So little it practically rounds to or actually is zero. So even if you get a job making three-quarters of the median class average, say $25,000 a year, that’s a $25,000 raise over last year. You’re unlikely to ever see a raise that big again. Last year you got by on Ramen noodles, Faygo pop, and Lord knows what else (Milwaukee’s Best, anyone?) Want to be able to save next year? Simple: live life a lot better than you did last year, but not like you really want to. Not like they do on television either.

The time for your own apartment in the top-tier building may come, and along with it the mid-range sports car, but if you want to get started on the right financial foot, you’ve got to first live rule number one: put your money to work. And, in order to do this, you’re going to need to spend less than you make. In fact, if you do this one thing repeatedly, if you only spend less than you make, you’ll be well-off, even if you screw everything else up. Well that, and if you don’t commit any major crimes.

This doesn’t mean a life of frugality. That wouldn’t be any fun. It’s also would not be sustainable. You’ve heard of all those folks on crash diets who have all their weight back on a few months later. Someone who tries a miserly life will be annoyed, discouraged, and, more than likely, at the mall buying crap they don’t need before too long. So instead of that overly frugal path, simply follow rule number two:

[To be continued]

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5 Comments to “Graduation Speech Part 2: Tell your money to go to work”

  1. Hi Gary, this concept could be the most important one we EVER teach our children. I recommend savings be included as part of every child’s allowance. And, if parents can, they should match it. It sure grows a lot faster and the kids get to see the results even sooner. It turned my kids into savers!


  2. Gary says:

    Thanks so much for writing to me! No one ever writes to me – just to Michael. Incidentally, it is Michael who wrote that speech and who does most of the posting. But, since you wrote to me, I’ll give you my two cents:

    While there’s an element of truth to his post (and your comment), I think people would be better off focusing on things more important than good financial habits, or why would they need me?

  3. Michael says:

    Sorry Cindy, I just saw you woke Gary up.

    Thanks for your post. You and I both know that when it comes to the good financial planners out there, they’re thrilled to work with those with good financial habits, who are already savers, and who are ready to learn. (Gary just doesn’t represent that sort of planner too well.)

    Glad your kids are off to a strong start!

  4. Paul says:

    Michael or Gary,
    How to you get kids to listen and most importantly, to practice this habit of watching what you spend and actually saving money?
    I recently moved into a ready made family, two girls, both just turned 15 and 17. Smart and on honors but only into MTV and iPod and MySpace and Facebook. Wasted their summer away laying around the house all day or sleeping. I’ve tried talking to them but you know teens, they know better than us, right? :)

  5. Michael says:

    @Paul–There’s no silver bullet here, especially since some financial habits are formed when kids are very young. But I’d hardly write off to teenagers (okay, I’d take the tax exemption, but that’s a tangent.) Rather, as you’ve said, there’s something to be done here.

    I don’t thing there’s anything wrong with teens being into the things you mention (heck, I spend a bunch of time listening to my iPod working out and on Facebook reconnecting). Yet for some reason you’re skeptical of their financial habits and cite as your example their not working all summer. I agree, that’s a red flag, especially since they didn’t do volunteer work or something else valuable with their time. In my family, you worked over the summer once you were old enough to do so. Period. Let me tell you, I understood the value of a dollar much quicker once I saw that by buying lunch at the deli counter I was giving back half the money I earned in a four-hour shift.

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