A Different Graduation Gift

See Affiliate Link Note and Disclaimer at end of article

Introduction

For the last couple of years, I have changed my graduation gift strategy. Previously, I would provide the High School or College graduate with a generous check or gift cards they could enjoy. Now, I give them a smaller gift card, but also include something I believe will be more valuable to them in the long-term.

As I explain my gift to the parents, family members, and friends—since it is a little wonky—several have encouraged me to share this more broadly. As such, I thought I would share my gift strategy with you.

What Does the Graduate Receive?

The graduate receives:

• A Letter from Me (shared below)
• Cash (approximately $50 - $150)
• A Gift Card (approximately $50 - $100)
• Book(s) - The Simple Path To Wealth: Your road map to financial independence and a rich, free life and The Automatic Millionaire, Expanded and Updated: A Powerful One-Step Plan to Live and Finish Rich.

My Letter

[Name] -

I want to say congratulations on your graduation. I get to hear all your wonderful achievements thanks to your mom and dad. There is a lot to be proud of and I’m sure everyone is celebrating your accomplishments.

I want my graduation gift to be meaningful and valuable, and not something you will use once and possibly throw away or discard later. You may not know, but I’m a huge proponent of personal finance education and I want to use some of that knowledge to help you jumpstart your future.

I come from a poor family upbringing and if it wasn’t for a few wonderful mentors when I was your age, I probably would still be poor. Their advice was, “Save 15% of everything you make for retirement.” This is good advice; however, I wish they would have told me to save 25%... I could be retired right now and doing more service projects or mission trips. Regardless of what that number becomes for you, I hope you save for retirement now. The biggest advantage you have is time (40 - 50 years) to let your money grow. Most people don’t really start until it is too late, and they are in their late 30s or early 40s.

My graduation gift and ask is this:

1. I want you to read the book, The Simple Path to Wealth. JL Collins initially wrote this as blog posts to his daughter and it got so much attention, he turned it into a book. It is the number one recommended book in the Financial Independence community.
2. I have $150 cash for you. I want you to deposit this into your checking account.
3. I would like you to open a Roth IRA retirement account with a brokerage firm. I would suggest Fidelity, but it can be with Vanguard or Schwab. I find Fidelity has the best tools and I’ve been with them for 30+ years.
4. I would like you to link your checking account to your brokerage account.
5. I would like you to transfer that $150 to your IRA Account.
6. I would like you to purchase $150 of FXAIX or FSKAX. I’ve been buying FSKAX but FXAIX is newer, and they are nearly the same. Both are $0 to buy shares and you can buy fractional shares (i.e. if you have $50, you can buy ~35% of a share). See comparison.
7. [Bonus] Take a picture of your new account and send it to me. It will touch me dearly, knowing that I have helped seed your retirement account.

FXAIX / FSKAX Comparison

When you read the book, Simple Path to Wealth, JL Collins discusses Vanguard and VTSAX. FSKAX is Fidelity’s equivalent to VTSAX. Also, if you try to buy VTSAX in a Fidelity account, they charge $75 for the transaction. That is wasted money. Just buy FSKAX or FXAIX.

I included one of my favorite visuals in the compounding of money. You are currently allowed to contribute $7,000 into a Roth IRA account. If you do this every year (basically $583 per month) until you are 60, you will have invested $289,000. However, you will have earned $1,350,000 in FREE money (with a total balance of $1,639,000) by the time you turn 60.

You’ll also learn about the 4% rule. It basically means you can take 4% of your total money from your retirement account and pay yourself. So, if you have $1,000,000 saved in your account, you can take out $40,000 every year to pay yourself and still have approximately $1,000,000 left in your account.

$583 a month may sound like a lot, and right now it is, but as you make more money, try to max out your Roth IRA. Make it a priority to fund your retirement. If you work for a company that offers a 401K (or similar), take advantage of that first; especially if they offer a company match.

Don’t rely on the government, family, or friends to take care of you when you get older. Forget the new cars and things that don’t earn money for you.

For now, try to save $25, $50 or $100 a month. Make investing into your future a habit. The book, The Automatic Millionaire, will help provide some basics for you.

Some will think that money is evil and ungodly. I disagree. Being a saver, living on less than you make, taking care of your family, and being generous is based on Godly wisdom. Dave Ramsey has a great article on this if you are interested, God’s Ways of Managing Money.

Lastly, that $150 I gave you will be about $3,500 when you are 65 years old. Wishing you the best in your next chapter of your life.

- Stephen & Misty

Compounding of Money Visual

Affiliate Links

This article uses a few affiliate links for the books. I may receive small compensation if you purchase any books from the link.

Disclaimer

I am not a certified financial planner, and any financial numbers and strategies are for discussion only. Seek professional advice from accountant and/or professional financial planners. But do NOT use a financial advisor that wants to manage your assets for you (known as Assets Under Management at 1%+). Select a pay by hour or visit only.

Thank You

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