Lessons from an old geek
Note: I am not an accountant or tax pro. I am just telling you what has been working for me.
Don’t go on a huge spending spree after graduation
When you get your first job that $70-75K/yr will make you feel like billionaire Warren Buffett. You are NOT! I have seen too many new grads go on huge spending sprees, buying toys which eventually caused them financial hardship. Make a budget and stick to it.
Your first few years after graduation will be some of the most cash strapped times of your life. Plan for it. Houses, weddings, cars, and kids come all too quickly and expensively.
Geek Lesson 1:
Typical monthly finances:
Monthly take home pay based on $70K, $15K/yr 401K contribution, no health insurance - $3400
Monthly cost for a $134K house in Maine(7% mortgage, insurance, taxes, no mortgage insurance) - $1100
Used $27K car - $600
Electricity - $200
Car insurance - $60
Monthly heating fuel averaged - $160
Food per person - $400
Money in: $3400 Money out: $2520
Note that there are no student loan payments, mortgage insurance, credit card bills, entertainment, health insurance costs, or baby strollers in these numbers!
Where does all the money go? Here is what my $72K/year paycheck looks like:
No laughing! I claim “single, zero” so I always get a tax refund.
This is pretty hard to read so here is a better break down:
Monthly pay: $6,154.23
Federal/state taxes -$1,161.14
Pretax retirement savings -$2194.92
After tax short term disability -$26.83
Take home check $3386.76
However, I automatically and permanently divert a car payment(10% ~ $338.68) to my stock trading account so I always have a vehicle’s worth of money available in case my car dies.
ACTUAL paycheck $3048.08
The one thing that is REALLY nice about working for UMaine is that if I contribute 4% of my salary to a basic retirement plan, they contribute another 10% or about $7300/yr in free money. Nobody in industry does that! Typical is 2-3%.
You are probably going to want to buy a house relatively soon after graduation. Don’t trust the banks.
When buying a house, the old rule was always a maximum of 2.5X your income. If you make $72K, look at houses under $180K. This is still the rule I use and it has served my wife and me well.
The banks, however, will probably approve you for 4-5X your salary. Don’t assume that because you are approved for it that you can afford it. This is why the stock market crashed in 2008. People trusted the banks and didn’t do pre-budgeting.
Geek Lesson 2:
When you buy your first house, a 30 year fixed mortgage is ALMOST always the best way to go.
I am a strong advocate of the 30 year fixed mortgage. The reason is simple. You can always pay extra on the principal and turn it into a 10 or 15 year mortgage without refinancing. If you are tight on money some months, just don’t pay the extra. If you get a 10 or 15 year mortgage you are forced to pay that higher amount.
Let’s say you buy a house for $200K at 5% interest and get a 30 year loan. If you pay it normally you will pay back $386,513 thanks to compound interest. If you make one extra payment per year, you cut off four years and eight months and the total repayment goes down to $352,723. That’s a free new car that came out of the mortgage interest that you would have given away to a bank.
If you pay two extra payments a year, the loan shortens by eight years to 22 years and you save $56,597 in interest payments. Get the picture?
Here is my mortgage:
Again that is hard to read. Here are the particulars. We bought a house in 2005 for $285,000. We have since refinanced it down to 2.375%. The monthly payment is:
Principal(payment on the debt): $621.10
Interest on the loan $394.36
Town taxes and homeowner’s insurance $662.92
Monthly payment $1678.38
Most of you will also have to pay mortgage insurance of several hundred dollars per month. I do not because I am a veteran that took a VA loan.
Loan interest is tax deductible but it decreases over time as there is less outstanding debt.
The town taxes and homeowner’s insurance could be MUCH higher. We only pay about $2400/yr in city property taxes because we are in a rural area with few services. This would be MUCH higher in a city like Brewer or Bangor that has several schools to pay for.
Remember...That $662.92 is NEVER going away even after the house is paid for. Even in retirement when our income will be less we still have to pay it. Just because you retire does not mean you are debt free.
Buy a three year old car.
Three year old cars generally have about 45K miles on them and cost half of the new price. They are a bargain and they are generally still reliable. I have two nice “midlife crisis” cars which I bought at three years old. They never get wet except to be washed. I also have a $500 rust bucket daily driver with 225K miles which I put all my boring commuter miles on. It’s nice to have backup. I generally retire a car at 300K or when the doors will not stay on. NEVER sooner.
It’s also nice to have a cheap car when you have to leave it at an airport. I wouldn’t be too upset if my ‘10 Honda Pilot with 185K miles got hit or stolen. My GTO would be another story..
Expect alternators to fail at 120K miles and starters at 150K miles. I actually change these parts at these mileages whether they need it or not.
Geek Lesson 3:
Fixing that heap.
Would you put $500 worth of repairs into a $500 car?
YES!!!!! If it makes the car last more than two months (aka two car payments) you come out ahead financially. Just keep fixing it and don’t look back.
Plan to be unemployed
Very few of the businesses I have worked for since my graduation are still in existence. The days of doing forty years at GM, getting a gold watch, and a pension at retirement are over. Mergers, acquisitions, shut downs, buy outs, changing markets, project completions are all things that happen which can force you out of a job despite your best efforts. Your only two good defenses are cash in the bank and keeping up with the latest in demand skills.
Whenever I take a job I always do my best to earn my paycheck, but I am also trying to gain new skills which will take me where I want to go next. ALWAYS keep looking around!
Most advisors recommend having six months of living expenses available as CASH(not stocks) at all times. I recommend $20K. Projects have a curious way of ending when economic times are less than ideal and the markets are down.
Geek Lesson 4:
Max out a retirement plan and Roth IRA
You may have heard of 401k’s and 403b’s. These are personal stock market accounts which let you put away money before it is taxed. That means there is a lot more to compound and it is easier to save. You pay the taxes(there is no free lunch) as you withdraw the money at whatever the future tax rate is. You also pay less current taxes. If you make $58k/yr and put away $18k/yr, you will be taxed at the rate of someone making $40k/yr. The more you make, the higher the tax percentage is.
Some people think that future tax rates will go up in the US to levels like Canada and Europe. If you would like to hedge against this, look at a Roth IRA. Under this plan, you put away money that has already been taxed and your gains grow tax free under current rules.
Geek Lesson 5:
In case you don’t know what a “share of stock” is, it is portion of ownership in a company. If the company has a value of one million dollars and it issues one million shares of stock to raise money for expansion or product development the cost of the shares will be ($1MM / 1MM shares) = $1 per share.
What about Social Security? Won’t that cover me??? Probably not. Here is my projected benefit:
That may look pretty good but there are A LOT of lower income people trying to get by on $400-700/month. Don’t be one of them!!!!
Use the power of compound interest
As young people you have a HUGE advantage when planning for retirement, time. (Yes, you need think about that now!) The concept of compound interest can make you very rich and secure with very little effort if you just start early AND DON’T TOUCH THE MONEY. Let’s do a little simple example:
Let’s say you get a $100 gift from Aunt Sarah at graduation and you invest it in the thirty stocks which make up the Dow Jones Industrial Average. The Dow has historically returned 7% over many years. After the first year you will have $107. OK...not too interesting. After the second year you will receive 7% again on the $107 or $114.49. Still not spectacular. At retirement, however, you will have
Geek Lesson 6:
Value = $100*(1.07)^48 = $2572.89
Now that should get your attention!
Now let’s do a few other examples:
Let’s say you are incredibly responsible and save the federal maximum every year until retirement. That means putting away $23,500 until age 70 and you get the typical 7%. How much will you have?
A paltry $8.4 million. You will have struggle along on $588K/yr if you want to live on just the interest in retirement. You will have made your first million by age 45.
Now let’s say you are less responsible but smart and put away the maximum for the first five years of your career and then never add another dime. How much do you have?
A less stellar $2.0 million. You will have to struggle along on $140K/yr if you want to live on just the interest in retirement. Just remember that everything will be FAR more expensive due to inflation. You will have made your first million by age 60.
Now let’s say you a typical person who saves nothing and panics ten years before retirement. How much do you need to put away just to get to $1 million?
$73K/yr at 7%. That is a seriously austere(impossible?) ten years just to get $70K/yr worth of income in badly devalued dollars.
Saving is the most important when you are young due to compound interest.
WATCH OUT FOR INVESTMENT FUNDS MANAGEMENT FEES! THEY CAN KILL YOUR RETURN!
Inflation: Compounding cuts both ways
�Cool! So I can save a lot of money with minimal effort. I will be rich!
Not so fast. Unfortunately prices tend to rise over time due to something called inflation. This is generally due to rising production costs for things such as materials and labor. Historically prices have gone up on average by about 2% per year. In 45 years the $4.00 loaf of bread that you can buy today will cost:
$4.00*(1.02)^45=$9.75
Are you still planning to buy that Ferrari?�
Don’t be afraid when the stock market corrects or plunges.
Junk happens!! Panics and corrections will only make you guys rich. Remember, when the market is down, you are buying cheap assets. When the market comes back, all those cheap assets will gain in value. This is called “dollar averaging”.
When a multi billion dollar company like BP or Bank of America has a huge event and the stock tanks, think about buying in as long as their long term revenue is unaffected.
Don’t try to time the stock market and don’t pull out just because the future looks bleak this week. Just turn the radio off. It will only stop you from making serious gains.
Geek Lesson 7:
Really afraid of the stock market or want a steady stream of income for your entire life? Think dividend stocks.
You can buy stocks and treat them like a savings account with NO plan to ever sell them. You get interest on your shares just like a savings account. This is called a dividend. Here are the stocks I hold for income:
Geek Lesson 8:
FXAIX - A low cost mutual fund consisting of the stocks in the S&P 500. The S&P is one of the benchmarks for the stock market’s performance. Over the long term it is hard to beat.
PFE - Pfizer, a pharmaceutical company, offering a 6.2% dividend yield as of April 2026.
UPS - UPS, a shipping company, offering a 6.5% dividend yield as of April 2026.
VZ - Verizon, a telecom company, offering a 6.1% dividend yield as of April 2026.
CAG(Want to buy) - Conagra Brands( Reddi-Whip, Hunt's, Healthy Choice, Frontera, Slim Jim, Blake's and Marie Callender) 9.3% dividend yield.
Combined they offer me income almost every month:
Just remember that dividends can be lowered or discontinued, although it is uncommon.
Next time you hear someone being mad about corporations not paying their fair of taxes, remember that they don’t pay taxes on profits because they give their money to their shareholders as dividends. The corporation may not have paid taxes on the money, but the stockholders did.
Be a stockholder and take their money!
Once you buy or rent a house, buy a Honda or Kubota generator powered by whatever you heat with (propane or Diesel not gasoline)
Power outages from natural disasters are a fact of life. Just after college I had all my friends sleeping in my living room during an ice storm because the power was out in Dover, NH. Luckily I had a fireplace, chocolate, marshmallows, and graham crackers.
Remember, if your place has a well and the power goes out, you will not have refrigeration, water, or toilets. That is not fun. I went through it once and then bought a Diesel generator.
Geek Lesson 9:
#2 home heating oil is the same as Diesel without the road use taxes so it is very attractive for backup generator use. It is also far more reliable because the ethanol in gasoline attracts moisture from the air and causes the small ports in the carburetor to corrode. Diesels also do not have an ignition system to fail. They burn the fuel by simply compressing the air until the mixture gets hot enough to ignite.
Most cheap generators are only built to last 300-600 hours. My used industrial Kubota generator has 9000 hours on it, doesn’t burn any oil, starts like it was brand new, has run for weeks at a time, and cost 15% of the new price on eBay. I heat with oil so I never have to go looking for fuel in a storm. There is always 275 gallons of generator fuel in the basement.
Appendix:
US Annual Debt Interest Payments
The $970 billion in interest costs were equal to 19 percent of all federal revenue collections in FY 2025. That means for every dollar of taxes and fees the government took in, 19 cents went to pay interest on the national debt. Interest payments effectively consumed all corporate income tax revenue, 56 percent of all payroll tax revenue, or 37 percent of all individual income tax revenue. They were nearly five times as large as receipts from customs duties and over nine times larger than receipts from federal excise taxes.