I wasn’t your typical teenager growing up. I had my first Certificate of Deposit when I was 16. I had my first Roth IRA when I was 17. I ended college with only about $6,000 in student loans. (And yes, I ended with my Bachelor’s Degree.) As I was updating my financials at the end of the first quarter, I got to thinking about how I could help guys who are just getting their professional lives started… and what things I wish I’d known.
Here are eight things to remember as you’re starting to grow your wealth.
Rainy Day Fund
I know it is probably old hat in this economy, but everyone should have a “rainy day” fund. This is money that is in your savings account or some other account that you can have immediate access to should you lose your job or have major medical issues. Depending on where you live and the stability of your job, you should have between six and nine months of living expenses – not income, set aside.
If you’re just starting out, it will be tough, but make it a rule to put aside 10 percent of your check each month and soon, you’ll have the nest-egg to fall back on.
Don’t Carry Balances
I was reading a book recently and the author referenced a story about a woman he was friends with. She had credit card debt that she couldn’t pay. No matter how hard she tried, she couldn’t catch up. So, to deal with the stress, she took yoga classes. Upon careful examination, her friend suggested she get a part-time job for a few months and in that time, she’d be able to pay off her debt. He saw that she was trying to fix the stress the debt was causing, the symptom, instead of the cause.
Don’t get into that trap too. It’s one thing to have loans, that’s okay. But carrying credit card balances will kill your financial goals. If it means you have to cancel Netflix or get a part-time job for awhile, pay the credit cards off each and every month.
Take Free Money
One of the first questions anyone wants answered when they are about to take a job is about benefits. Now, I know with us Gen Y’ers, we’re all about breaking the 9-to-5 system that has been laid out for us. I understand that and I am working towards that as well. However, just over four years into my professional career, I also believe there are many ways to make dreams happen. Therefore, if you end up starting working for “The Man” take whatever free money you can get!
That means 401(k), 403(b) and other benefits. It is a perk and you have to take it. You don’t have to put a ton of money into it, but think of this: Of all the money in my 401(k) account, only 65% of it is money I put in. The rest is company matching. Don’t leave it there for the next guy.
Track Your Spending
Mint.com is a great site if you’re tired of your Excel spreadsheets tracking your spending. It’s a free service that you sync up all your accounts, student loans and credit cards and it tracks everything for you. You can create budgets and set up goals. You can even set it up to send you an email when you go over budget on anything from eating out to cell phone charges. If you have financial goals, you have to know where your money is going.
This all takes time. I’m 26 and while I am different, I’d love to have $100k locked in, quit my job and take a year long vacation. I will do that someday. Up until June of last year, I was only invested in mutual funds. Now I own stock in seven different companies. It’s not a ton of money, but it was the logical next step. Investing takes time. But if you start now, you have time on your side.
As I said, I wasn’t your typical teenager. I thought I knew a lot ten years ago about investing. As I put more and more of my money into the market, I realize how little I actually know. Now, I do my best to read and understand not only company financial documents, but also the world. I should have listened to my friend Eric back in 2002 and invested in gold. I missed on that one. I was late getting on the natural resources bandwagon, but I’m on it now and it’s paying off.
Pay What You Can, But Save a Little Too
Last month the balance on my student loans reached $1,999. Some say that I should just pay it all off. Well, my interest rate is a measly 2%. I could easily pay it off. But I’m making nearly 2% interest in my high-rate savings account at Dollar Savings Direct, so it just builds a history for me to keep paying my $100 a month on my student loan. This allows me to save a little and invest that money in my Roth and stock accounts.
Finally, while all this is good, you need to live too. Go to the movies. Eat out. Get coffee with friends. But make sure you know how everything interacts. You work hard, so enjoy your fruit, but make sure you’re saving for the smorgasbord you dream for later in life.