In any economy, getting your first job is a gigantic process. I remember my journey to the first job and how exhilarating it was and how I thought I was perfect for each and every job I found. Now, as I near 30 and have seven years of full-time experience under my belt and 12 in personal finance and investing, I am glad I was thrifty growing up because I definitely have a different picture of my life today than a lot of people my age. And I want to help you be just like me.
It’s not about being cheap. It’s about setting yourself up for success. I started early, with a ROTH IRA when I was still in high school. I actually started with Certificates of Deposit when they still paid a good return, but that is no longer the case. But there are a few things, four to be exact that you should do now, as you get your first job to be sitting comfortably when you reach 30.
Pay Yourself First (cliche)
Yes, it is cliche and yes it makes sense, but so few people do this one. Depending on where you look, this comes in many different definitions, but here is mine: This means you putting a portion of your paycheck away … in some form. Whether that is a savings account, ROTH IRA, a Traditional IRA or a 401k, save something.
Join Your 401(k)
What is a “four-oh-wonk” as Phoebe said on FRIENDS? It s a tax-deferred – meaning you pay taxes when you withdrawal the money after you retire – retirement account through your employer. There are two benefits to this investment at any age, especially a young age. Since you are likely to be in a lower tax bracket, having your money taken out and put into this investment account lowers your gross pay, and thus the level of your taxation on your overall check. (Example: I live in New York State and my last check I put in $203.08 into my 401(k), but it only reduced my actual check by $143.00) Secondly, your company likely matches a certain percentage of your contributions. It is free money! (Example: Let’s say your company matches 10 percent of what you put in. So, in your first year, you put in $1,000. That means they will add another $100 on top of that!)
Make Things Automatic
When paying yourself first, do so automatically. Nearly every bank these days has the ability to set up automatic payments and transfers. Once you know what you’re going to be bringing in, set it up so your investing, whether it is savings or an IRA, happens automatically and without you having to think about it or make a choice about it each day.
There will be bad days. I remember days over the past four years where I would log into my various accounts (I have two 401(k)s, a ROTH IRA, a Traditional IRA and a Money Market) and see that I had lost thousands of dollars. Not hundreds. Thousands. My point however, is you are young and so you have all the time in the world to make back that money. Buy a lot now and you’ll thank yourself later.
Investing doesn’t have to be stressful and all these tips are based on ease. You don’t need to be a finance expert to open any of these accounts and you don’t manage these like a stock broker. They are very passive, but they will pay off. Time will be your friend.
Richard Dedor is a writer, speaker and personal coach dedicated to helping each person achieve their dreams. He ran for political office at age 18 and has written one book, Anything is Possible. You can find him at his blog Believe in Possible and on Twitter @RichardDedor.
Category: Investing & Earning