Money After College: How to Take Advantage of Time and Invest Early

Money After College: How to Take Advantage of Time and Invest Early
  • Opening Intro -

    When you graduate college somewhere in your 20s, the last thing you’re probably thinking about is retirement.

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The average college graduate enters this new phase with huge student loan debt and lots of other new responsibilities too. With this very degree which may have cost you up to $200,000, most people still start off with lousy job prospects and fairly stagnant wages.

In truth, those wages will still be more money than you’re used to handling; and as an effect of the 9 to 5 slaving, you may want to reward yourself by spending almost as quickly as you earn. However, making the sacrifice and tweaking your lifestyle to increasing savings is the quickest way to build wealth.

If you’re thinking, how on earth can you possibly save enough to invest when you have all those payments due monthly? The fact is it doesn’t have to be $1,000, it could very well be $100 or $200 monthly. And by using a Robo-adviser without minimums such as Betterment, you’d be watching your money grow without paying too many fees. What’s best at the end of the day, is to sit and decide what your investment goals are and do the research to figure out the rest.

Here are a few tips on investing to get you started with planning for retirement:

Managing Your 401K

Don’t ignore the fact that your employer will offer 401K. Most of them have a few fund options you can select from, but don’t let that overwhelm you. Try to educate yourself on how best you can get started with contributing to your 401K.

It’s safer to diversify your portfolio if you can’t decide on the best funds. Choosing a broad stock market fund and a bond index fund, could bring great returns over the next couple of years.

Without experience managing individual funds, you may also want to try a target-date fund, that combines different funds into a single entry date and sets allocation to match your retirement date. Target-date funds do have a number of flaws, and can be limiting, but starting to save once you have the chance is better than waiting to learn. Plus, you can always re-evaluate your investment strategy in a few years.

Maxing Out a Roth IRA

Roth IRAs differ from traditional IRAs because you pay taxes today at your current tax bracket, rather than defer until retirement where your tax bracket may be higher.

As a college grad, you’d likely be on a professional career path, which means your tax bracket will surely increase with age and experience (higher earnings). If you can afford to, then you should max out a Roth IRA with a decent sum of say $5,000 per year, which will grow tax-free.

On the other hand, if you’re planning on working for a bit after college, and then going on to grad school, you can also consider taking advantage of low-income grad student tax brackets. Here, you convert the money you may have earned from your 401K right after undergrad into a Roth IRA.

At age 20, a one-time $5,000 contribution to a Roth IRA will grow to over $170,000 by retirement age. You can compare that to waiting 20 years to receive a dwarfed sum that’s below $40,000 and see for yourself that ‘right now’ rather than later, is always the best time to invest in something worthwhile.

Do you know some recent college grads who are already in or looking to enter the corporate world? Share this article with them and they’d be thanking you later, once they start seeing the returns from taking action.

Consumer Tips reference:

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Last update on 2017-12-15 / Affiliate links / Images from Amazon Product Advertising API

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