Want financial success after college? Five moves to help you make money.(Read article summary)
Before you graduate from college, be sure to follow these five steps that will lead you on the right path toward financial success.
Graduating from college is both an exciting and stressful time as a young adult. The economy is not what it used to be, so there are a lot more unknowns about the future. On the flip side, there has never been a better time to be make your own luck, carve out a different career path, or make strides towards financial goals.
Here are five of the best financial moves you can make as a college grad to ensure a successful future.
1. Don't Wait to Invest — Time Is on Your Side
One unique advantage that college grads have (as compared to older individuals) is the fact that time is on your side. The best time to start investing in your future is now because of the power of compounding interest.
This example from Get Rich Slowly explains it plainly. Let's say you're 20 years old and make a one-time $5,000 retirement savings deposit into a Roth IRA account that earns an 8% return. If you don't touch these funds until retirement at age 65, you'll have $180,000 saved up. However, if you wait until age 40 to make that one-time $5,000 contribution, earning the same 8% return and not touching the money until age 65, you'll only have $40,000 in the account.
The difference is $130,000 in free money gained from interest simply because you waited 20 years to start saving. A small amount of money, saved or invested over time, can add up to quite a bit the more time it has to grow. That's the magic of compounding interest and why you must start making financial moves now. Don't wait!
2. Determine Your First Priority
Do you have student loan debt? Do you have a car payment? Do you want to travel and have adventures? Do you plan to get married and have a family? In other words, what are your goals?
Determine what's most important to you, in order of when you expect these life events to happen. Then prioritize these goals and create a financial plan for how to accomplish them. If you plan on paying down debt, it's time to cut back spending and increase your income as much as possible. Consider taking on freelance work or a part-time job on the weekends.
If you want to become a digital nomad and travel the world, you'll have to create a plan to sell your belongings, save up money, and prepare to live in different countries. Make your goals a priority and create a plan to pursue them.
3. Make Saving Money Automatic
Thanks to new microsaving tools, there are lots of ways to automate the saving process. Something as small as $10 a week, or $25 a month is better than not saving anything. You can choose a free service to help you create goals and set up automatic transfers each month, or open a new savings account at your local bank and make recurring deposits on your own.
However you prefer to save money, the important thing is to make saving money easy and automatic. You don't want to turn it into a weekly task where you have to make a deposit transfer each month. You'll eventually tire of this and give up on the process.
4. Keep Investments Simple
Investing usually comes off as a complicated and confusing topic, which turns many of us off to taking steps down that path. But don't let this barrier stop you. Keep your investing strategy simple and only put your money into retirement vehicles if it makes sense.
Don't worry about stock market trading, or staying up on the latest economic news. Simply sign up for your employer's 401K, or open a Roth IRA or CD at your local bank and start putting small chunks of money away every month. Diversification is important, but you don't want it to get overly complicated. Keep it sweet and simple until you get comfortable with investing basics.
5. Find a Mentor
One of the best ways to decrease the process of learning, and save yourself loads of headaches, is to find an expert or mentor to learn from. If you want to learn more about starting a business, work with a business coach or other successful business person who can mentor you.
If you want to learn more about investing and building a portfolio, find a smart investor you want to pattern yourself after. A mentor can teach you things based on their life experiences, and pass along ideas and tips that wouldn't otherwise be available to you.
Enjoy the time you have as a recent college grad, but don't let too much time go by before taking steps towards these financial moves. Time is on your side — don't wait!