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Money Guide for Graduates: “Hey Dad, Do You Have Any Tips On How to Get Rich?”

by Mark Skousen, Chairman, Investment U
Thursday, April 27, 2006: Issue #530

I couldn’t believe my ears. I was flying back to New York and overheard a six-year-old named Danny ask his dad, “Do you have any tips on how to get rich?”

Now there’s a boy going places. Even Warren Buffett didn’t own his first stock until he was a teenager.

Tragically, only a small percentage of young people learn anything about the stock market and personal economics in school, or even from home. They think of sports, sex, and how to get good grades, but little, if anything, about price-to-earnings ratios and P&L statements or even how to budget and balance a checkbook.

I talked to Danny’s dad after the flight. I wondered why this six-year-old had money on his mind. “We just came back from Las Vegas,” he said.

Heavens! I hope Danny doesn’t get off on the wrong foot and think that making money in business or Wall Street is like Vegas, a pure gamble. Warren Buffett and Bill Gates didn’t get rich solely by following Lady Luck. They learned to earn!

Which brings me to today’s lettera money guide for graduates.

A Powerful New “How To” Money Guide for Graduates

Since graduation is coming up in May and June, I’d like to recommend you give students who are graduating or finishing a semester a book called Automatic Wealth for Grads Or Anyone Else Just Starting Out, by Michael Masterson.

If you want a gift for the 21st century graduate, this is a good choice. Written by an experienced entrepreneur, Masterson is like a modern-day Ben Franklin.

Of course, he preaches thrift and the power of compounded interest. After you pay your taxes, “pay yourself,” he admonishes. Save at least 15% of your after-tax income. That’s a tall order, especially for someone just starting out in life. But it can be done

John Templeton, the famed mutual fund guru, saved 50% of his income during the 1930s Great Depression. I know others today who save 35% of their income. (I always save money every year through my IRA and Automatic Investment Plans at my favorite discount brokerage firm.)

Live It Up, But Live Within Your Means!

Like Franklin, Masterson preaches economy and modest living, even when you are wealthy. He rejects the Keynesian mindset of the consumer society; instead, he advocates the frugal society.

Buy a used BMW, not a new one, and save. Don’t buy an expensive big house. “Buy the house you most admire, which is probably not huge and flashy,” he says. “Less is more.”

“Overspending is a major problem,” he declares. He tells the story of Mike Tyson, who made more than $300 million during his boxing career, and went bankrupt.

Most people think the way to wealth is by:

Earning more money
Getting a raise
Inheriting a fortune from a rich uncle
Or winning the lottery.

Actually, Masterson offers a lot of good advice in getting a raise or in increasing your income dramatically, and it is sound advice. Make sure the recent graduate in your life reads these chapters carefully. Make sure he remembers that making more money is no guarantee of financial success.

You need to live within your means, you need to protect your backside, and you need to keep a budget. To make sure you’re getting richer every year, always spend less than you make. Always.

What To Do With Your Savings

Then there is the principle of sound investing. What good is it if you save 15% and foolishly invest it in scams and bad investments? Masterson shows you how to invest your surplus money prudently in the stock market, real estate and other alternative investments. He has excellent chapters on investing your savings wisely, based on experience and the sound advice of experts. “Learn to earn,” as Peter Lynch says. You’ll make the mistakes, but you’ll learn from those mistakes and do better.

I like Masterson’s fundamental approach to stock market investing. Invest in growth, in companies that can’t help but burgeon over time, and buy them cheaply, at a discount. Buy small-cap stocks that are growing rapidly. (I would only add that you should consider investing abroad – foreign stocks often offer excellent profit potential.)

Don’t Die Rich – Live Rich!

I especially enjoyed reading chapter nine, the final chapter, “Living Rich Starting Tomorrow.” This is a chapter that only a seasoned veteran could right: “Slow down to enjoy life Eliminate major time killers like television, video games, and web browsing Reduce stress in your life by making time for your favorite pastimes Get a restful night’s sleep Take regular work breaks Leave your work at work Stop thinking about yourself.”

Of course, Masterson says that few people really understand these sound principles, so they struggle financially throughout their lives. Franklin said it well, “Experience keeps a dear school, yet fools will learn in no other.” Hopefully, this book will help a grad you know reach his or her goals in the fastest, most painless way.

Good investing, AEIOU,

Mark

Today’s Investment U Crib Sheet

The easiest way to order Automatic Wealth for Grads is through Amazon.
I’ve learned many investing lessons the hard way, making mistakes And I’ve used these lessons to establish a single moneymaking rule for myself – and when applied, it generates profits right away. Read Investment U # 474: Investing Guide: The First Investment Ruleand How To Put It To Work to find out how to implement this strategy now.