From making money to paying off student-loan debt to climbing the career ladder, Internet
entrepreneur Tom Gardner offers these words of wisdom
by Mike Hofman
Okay, you're about $12,000 in debt thanks to your student loans,
and the Visa people are starting to get real snide about your credit-card
bills. Come May, the real world hits: you'll get a job, cash paychecks
regularly, and sign up for health care. In short, your adult life will start to
take shape. But here's the rub: those serious questions you've carefully
avoided are now poised to dominate your thoughts. How do you make sure that you
ace the grown-up "I pay my bills" thing without becoming a drone? For answers,
we turned to a personal-finance expert who can identify with your station in
life. Tom Gardner, 31, founded a personal-finance Web site with his brother
David five years ago. He also co-authored three best-selling business
books with his brother: The Motley Fool's You Have More Than You Think,
The Motley Fool Investment Guide, and The Motley Fool's Rule
Breakers, Rule Makers (all published by Simon and Schuster). The books and
Web business have made him wealthy and a mini-celebrity in the business world.
And he did all this fresh from grad school, having held just a few odd jobs,
including a stint as a bookstore clerk in Burlington, Vermont. Here is
Gardner's formula for getting out of student-loan debt, avoiding credit-card
debt, and climbing the career ladder.
Q: The premise of this article is that you can offer money advice to
people graduating from college. Should I ask a question, or do you want to just
A: I'll just start talking. Here's rule number one: Do not buy a new
car, under any circumstances.
Q: This is something you're passionate about, I take it.
A: A car is a depreciating asset. The more you put into it, the more
you lose. My brother bought a new car when he was 20 and he paid the full list
price. I've never let him live it down. Buy a used car.
Q: What was your first car?
A: It was an old Subaru that I had when I was at Brown. The radio was
stolen in Providence, so I wired a new radio in the glove compartment. I was
pretty proud of that little trick. I did break down and buy a new car
eventually, in 1993. It was a Jeep Cherokee, and I paid something like $14,000
for it. If you do that, negotiate a lot. And do it by phone if you're
uncomfortable haggling with a dealer in person.
Q: This ties into a bigger issue -- personal spending and
A: As you're in your wealth-accumulation phase as a young person, you
have to be careful about your spending. Every dollar you spend, if you put it
into a mutual fund or into the stock market instead, would be worth $5 or $6 or
$7 in less than a couple of decades. If you think about it that way, you end up
recognizing the value of savings. When you hit 45 -- the wealth-preservation
phase -- then you can start doing some serious spending.
Q: More college-age folks are getting into the market, but for many
it's still very foreign.
A: The early mistake that I made -- and that 99 out of 100 people make
-- is that I had almost no interest in the stock market. I didn't think my
personal values could mesh with Wall Street and investing. But now I think it's
a great education for a young person. How else can you learn how business works
and how the world works?
Q: How did you start picking stocks?
A: I realized that the places I buy from may be great investments. If I
spend $400 a year at Abercrombie and Fitch, maybe I should buy their stock. I
support the business as a consumer, so it makes sense for me to support
them as a potential investor as well.
Q: A lot of people want to get into investing but don't have enough
money to buy 10 shares of stock X, let alone pay a broker's fee.
A: You can start investing with only maybe $50 through something called
a dividend reinvestment program. It's called a DRP or a "drip" for short. It's
a way of buying stock directly from the companies you're investing in. It cuts
out the broker.
Q: I haven't heard of that.
A: You haven't heard about it because Wall Street doesn't want you to
know about it. All you have to do is buy the first share of stock, and then you
can add $5 or $10 per month and buy an eighth of a share or whatever. You can
look at the market as a bank, almost. But at a bank you'd get 3 to
5 percent interest, while in a good stock you might get 10 to
12 percent growth.
Q: You can buy any stock this way?
A: Not all companies have programs, but many of the really big ones do.
Call a company and ask for investor relations and they'll help you. Say to
them, "Do you have a plan that allows me to buy shares from you directly?" Just
tell them -- let's say it's Johnson & Johnson -- that you like their
Band-Aids, so you'd like to become an investor in the company.
Q: Before you think of putting money in the market, shouldn't you
deal with more micro issues like paying off your credit-card debt?
A: People ask us all the time if they have $1000 in credit-card debt
and $2000 saved, should they invest the $2000. No! Pay your credit cards down
and then worry about investing. If you earn an 8 percent return on your
investments but you're paying 17 percent on your debt, you're not doing
Q: How many credit cards should a 21-year-old have?
A: I'd be committed to having just one. Stay away from the store cards.
Their interest rates are usually outrageous. Some of them make more money on
financing the cards than they do on the transaction of goods.
Q: How do you pick between Citibank and NationsBank and whomever
A: There's a Web site called
Ramresearch.com that is a great
resource of credit-card information.
Q: What kinds of rates should you look for?
A: Interest rates are at an all-time low in our lifetime, and yet they
still charge as much as 17 percent. It's a total scam, and the credit-card
companies know it's a scam. Unless you're in serious financial trouble,
don't pay more than 10 or 11 percent in credit-card interest. Call your
provider and say, "I have so many offers coming in through the mail that,
unless you drop my rate to under 10 percent, I'll move my balance over to
another card." They spend $1000 on marketing for each new customer, so they'll
drop it before they'll let you go to another provider.
Q: A lot of people tell you to keep a budget, but that seems awfully
stifling. Did you do that in your salad days?
A: My advice is to keep a budget for just one month. No one likes to be
tedious and map out what they spend on food and beer and entertainment and
books. You have to strike a balance between being thoughtful and being miserly
and obsessed. If you keep a budget for just one month, it's kind of an
eye-opener. You see where you spend way too much. Across the board, I think
there's a way to cut everything by at least 25 percent. You think to
yourself, "I spent that much on eating out!" So maybe you bring lunch to work
from now on. You can save $500 a year that way easily.
Q: I know that's true, but I can't break the habit of eating out.
It's hard to cook for myself every night -- I'm so tired when I get home from
A: I'm a big fan of potluck dinners. They're huge. Do that instead of
going out. All you have to do to come out ahead is commit to eating more than
Q: Career-wise, what advice do you have?
A: Start working at a smaller company. The folks I know
who are frustrated work at big corporations. Everyone should have the
experience of working at a dynamic company at least once. Why not do it when
you're a 22-year-old? Your job will have meaning and you can have an effect on
the business. Hopefully, you can get stock options and retire when you're 25!
Q: But most people think that a big company can offer the security
that a smaller company can't.
A: Even if you work at a failing company, just being there has an
education value for the rest of your life.
Q: What's so great about the experience?
A: A young person's performance is measured more rigorously and you can
make more of a difference. The problem might be if you have student loans. I
think a lot of people in that boat decide to work for a giant consulting firm
for three years and then get out. Just make sure you get out when the time
Q: Was your first job at a big or small company?
Visit the Motley Fool
at http://www.fool.com for more of Tom Gardner's finance tips. Articles geared
toward college students and recent graduates can be found at
http://www.foolu.com. Sections include paying for college, how to begin "drip"
investing, and the "10 steps to financial independence."
A: I worked for three weeks at an independent bookstore in Burlington,
Vermont. It was totally mismanaged and has since been leveled by Barnes &
Q: What was good about the experience? What did you learn?
A: We had to greet people at the front door and stay with them
while they looked at books. Most people feel uncomfortable in that situation.
They'd just prefer to browse on their own. I learned that you have to focus on
what the customer is coming to your business for. Whether you work for a local
restaurant or a bookstore or a national company, you really, really, really
have to be focused on the experience that a customer will have coming into your
business. We're moving into a new age when buyers have an incredible amount of
information, so they can go anywhere. I think it's good to work at any company
where you're exposed to a lot of customers.
Q: How do you find a job that's enjoyable -- that can become
A: Don't send résumés out to 30 different companies. You
don't want a company to put you in a group with 50 other faceless people who
have also sent in their résumé. Do some more research and narrow
your interests down. Express your interest to one or two companies. Call their
human-resources department and say, "Hey, I want to learn more about your
company" before saying, "Hey, I want a job." Ask them what kind of culture they
have. Any HR person worth his or her salt will take the time to talk to you.
People who send us those kinds of messages -- usually in an e-mail -- are
always welcomed. I'll stop short of saying it's garbage to draw up a
résumé. You should play by the rules on one level, and have a
good-looking résumé, but be more entrepreneurial in your approach
to a company.
Q: You've started your own company, which more young people are
doing. Would you recommend that path to others?
A: That entrepreneurial part of your life helps you see more
clearly what you want to do with your life. But there are also tradeoffs. I get
1000 e-mails every day that I don't want to deal with. I would not go out and
start a business unless I was doing it with somebody else and had the potential
to hire a lot of friends, which Dave and I have done.
Q: Friends are key?
A: Definitely. I wish I had moved a bit more with my college friends. I
think it would be really cool -- slightly European -- for you to pick a city
like San Francisco or Chicago or New York and move there with four or five
friends to get jobs. You can maintain the network that way. Four of the five
will get jobs pretty quickly and the fifth will live off the other four. That
fifth guy would be my brother Dave. . . . I'm just kidding.
Mike Hofman is a staff writer for Inc. magazine.