Congratulations to all the 2022 graduates! I cannot help but think back to when I graduated college and how excited I was about the opportunities in front of me. After almost 30 years of working with clients and their children, here is some key financial advice for any graduate as you start the next chapter of your life.
Pay yourself first – Warren Buffet, CEO of Berkshire Hathaway, and one of the most successful investors in the world says, “Do not save what is left after spending; instead, spend what is left after saving.” This mindset can stay with you throughout life if you begin implementing it at an early age, especially when you start to see the power of compounding returns. As you begin your job, commit a monthly amount of your paycheck to savings and automate those contributions to ensure your progress continues. A good rule of thumb is to save at least 20% of your net income to put towards establishing your emergency fund, investment accounts, or retirement accounts. Plan your monthly budget with what is left after your automated savings. Finally, as your income begins to grow, increase your savings proportionately.
Don’t be afraid to invest – Once you have established an emergency fund, the equivalent of 3-6 months living expenses, it is time to contribute to an investment account and/or a retirement account. If you are investing in a 401(k), be sure to make your investment selections to immediately put your contributions to work. Don’t over think the investment options, especially in your retirement accounts since you will not withdraw from those accounts for decades. Obtain broad market exposure using index funds and mutual funds and remember that you are investing for the long term. The best time to begin investing is now; do not try to time the market.
Use debt wisely & build your credit– Building your credit is important, and it can be even more impactful if you choose to live below your means. Just because you qualify for a larger car payment doesn’t always mean you should proceed with it. It can be more advantageous to go with a lower monthly payment since it reduces the likelihood of default. Make timely payments and be sure to always pay off the monthly credit card balances to avoid interest. These steps will gradually build your credit, which will pay off in the future when you need it for a loan or your first mortgage.
Inevitably, there will be mistakes made and lessons learned, but these fundamental tips will help you create good habits and stay on course. As for any mistakes made along the way, as Oprah Winfrey says… “Turn your wounds into wisdom.”
Mariella Foley CFP® is a Partner and Wealth Advisor with Round Table Wealth Management in Westfield. She can be reached at firstname.lastname@example.org or 908-374-2570.