Your 5-minute guide to money in your 20s
It might be a cold, cruel post-college world out there, but these 26 suggestions can help warm things up for you.
You're finally on your own. It's exciting, scary and, well, really scary.
First, you'll need a job, but you knew that. A few helpful tips:
Spend the money for a new suit, shoes and a haircut so you're ready for interviews. (See "A survival guide for college grads.")
Don't spend money for a résumé kit; find a free tutorial online.
Find out if your university has an alumni chapter nearby. Alumni are a wealth of information and are often eager to help new graduates.
Be careful about accepting a job in an unrelated field simply because it pays more. This could delay your career progress or trap you in a field that may not make you happy.
You're hired! Once you land a job, you'll breathe easier, but keep a few things in mind:
You'll probably earn more money than you're accustomed to, but Uncle Sam will take a bigger bite, too. Don't spend your first paycheck before you actually get it. (Get an idea of what your take-home pay will look like here.)
Your tax return will become more involved as your salary and investments increase. Plan for deductions. (However, the costs you incur landing your first job aren't deductible.)
Remember that your career is your most valuable asset. Manage it better than any other investment.
A place for your stuff More than 30% of young graduates move home with their parents after college to save money. Do that only if you have the discipline to save and not spend that "extra" cash. Some things to know:
If you're new to a city, open a bank account before finding an apartment. Landlords often require first month's rent and security deposit to be paid with a certified check or money order.
When applying for your apartment, be prepared to pay upfront money, and read and negotiate your lease before you sign. Don't lie about your credit history. (See "How to find your first apartment" and then check out the want ads.)
Get a roommate. Just remember that it's a business arrangement, so outline responsibilities, chores and phone usage beforehand. (See "Let someone else pay half your bills.")
Consider subletting an apartment for a while. Sites such as Craigslist.com can help you find a sublet and give you an idea about the cost.
The key is budgeting Once the necessities are in hand, develop a budget so you'll know where you're at -- and where you're going. We like "The 60% solution," where essentials come out of the first 60% of your pretax income. The rest goes to long-term savings or debt repayment, short-term goals and fun money. (For another starting point, check out "How to build your first budget.") Other budget items to consider:
Car insurance is expensive but crucial. (See "12 secrets your car insurer won't tell you.") And the easiest way to save is simply to drive cautiously. (See "It pays to avoid a speeding ticket.")
Basic groceries should cost a single person about $150 a month. You'll spend more if you eat out frequently or buy processed foods and frozen dinners, so learn to cook.
Budget for paying off credit card debt. Compounding interest is your No. 1 enemy. (See "Your 5-minute guide to credit cards.")
Don't put off student loan payments. They accrue interest, and they don't go away. If you ever declare bankruptcy, student loans won't be forgiven. But don't pay them off early, either. Student loan debt usually has lower interest rates than credit card debt. (See "How did student loans get so sleazy?")
Now's the time to save You will always find reasons not to save, but you will never again have this much time to save for retirement or a home, so start, even just a little. (See "To get rich, start saving in your 20s.")
Enroll in your company 401(k) plan. Most companies match your contribution; by not enrolling, you're throwing away free money. (See "Young all but ignore 401(k)s, IRAs.")
Use a Roth IRA. You'll fund this with money that's already been taxed as part of your paycheck, but money in a Roth IRA withdrawn later is tax-free.
Be aggressive. Put 90% of your investments in stocks, which historically grow about 10% annually.
Start amassing an emergency fund so you don't bury yourself in debt if your car dies, your roommate comes up short on rent or you suffer some other financial mishap. Ideally, you'll stash three months' living expenses, but the important goal is to save something. (See "Why you need $500 in the bank.")
Get a small amount -- $1, $2, $5 -- of "cash back" from your debit card at the checkout and slip it into your savings jar. At a buck here and there, you'll forget about it.
Watch your spending Cut back now and you'll reap rewards later. A few ideas:
Buy a used car. The most expensive miles on a car are the first 10,000. Let someone else drive those for you. (See "5 rules for buying that first new car.")
Beware the little luxuries. A 20-ounce bottle of water each day adds up to about $365 per year, weekday coffees can total $400, daily vending machine snacks can cost nearly $300, and a weekly manicure can set you back more than $1,000 per year. Pack your lunch and save more than $2,000 each year.
Put off buying new gadgets until the price drops.
Don't date your way into debt. Buying dinner and movies adds up, so get creative -- try picnics, hiking, book readings or arts festivals.
When the inevitable wedding invitations come, don't let the gifts rock your budget. Get creative or chip in for a group gift. (See "6 ways to cut costs on wedding gifts.")
Avoid shortcuts. The road to bankruptcy is paved with payday loans and pie-in-the-sky investments.
By MSN Money Staff
Showing posts with label 20's. Show all posts
Showing posts with label 20's. Show all posts
Friday, September 5, 2008
To get rich, start saving in your 20's part 2
Be aggressive with your investments Make sure to invest your money shrewdly. According to Hewitt, workers 18 to 25 typically invest 35% of their retirement savings in bonds. Yet bonds have historically returned 5.4% a year -- right around the risk-free rate and just ahead of inflation. That's practically sticking it in a jelly jar! Stocks, meanwhile, traditionally have grown at an annual clip of 10.4%, according to Ibbotson Associates, an asset allocation service that's part of investment ratings agency Morningstar.
Instead, play it aggressive, and put 90% of your investments in stocks, says Ellen Rinaldi, executive director of investment planning and research at mutual funds giant Vanguard. Stocks are interchangeably referred to as equities, since as a stockholder you own a slice of the company's value in the market, its equity.
"From an allocation viewpoint, someone in their 20s has a very long horizon, so they can handle the ups and downs of the market," says Rinaldi. "They can recover from a downturn. As a result, they should be heavily invested in equities."
You can hedge against the risk of loss by diversifying your investments. That's a fancy way of saying you want to own as many different types of stocks as possible, and it's a message that will hold true throughout your lifetime. That means steer clear of buying a single stock and look to mutual funds, a tradable vehicle made up of sometimes hundreds of different investments in widely varying quantities. They could be made up entirely of stocks, bonds, a combination of both or simply track the market by holding equal amounts of all shares in a given index, known as an index fund.
So-called lifestyle or life-cycle mutual funds make it especially easy for novice savers to buy a diversified array of stocks that are tailored to their age and retirement goals. That's because these funds are set up to automatically pick and choose the equities in the fund, and to rebalance those holdings over time, buying and selling shares in order to maintain the advertised mix of risk and return (or caution and predictability) by age bracket.
"Look for retirement funds targeted to your age bracket. They'll be much more aggressive for someone in their 20s," says Rinaldi. "If you just look for a balanced fund, you may wind up with 40% of your money in bonds, which is a typical mix for these funds."
Get educated Meanwhile, don't be embarrassed to admit that financial talk can seem confusing. After all, financial know-how is not genetically encoded and, unless someone has taken the time to teach you about finance, you'll need to do a little learning. And now that you're starting to make and save money, this is the perfect time to educate yourself.
More than a third of companies now offer employees access to advisers who can help choose investments that will be most appropriate, according to Hewitt. These advisers can explain what holdings are in a particular fund and why they'd recommend one investment over another. Read books, articles or financial Web sites. The more you know, the easier it will be throughout your career to make solid, informed decisions.
"I think the reality is most parents are more inclined to talk to their kids about sex education than talk to them about finance or saving for retirement," says Jones. "That's just not a conversation people have, so a little Finance 101 is probably a good idea."
Build a strong defense with an emergency stash What's next? Start amassing an emergency fund so you don't have to rely on credit cards -- and possibly bury yourself in debt -- in the event that your car dies, your roommate comes up short on rent or you suffer some other financial mishap. Ideally, you'll stash up to three months living expenses, but the important goal is to save something. You can help stay on track by having automatic deposits made to your emergency account.
In the meantime, keep an eye on spending. Those splurges can add up fast and will prove to be a huge drain on future savings. What's more, if you pile on debt, you'll wind up wasting a lot of money on interest and fees that could be better spent elsewhere.
Avoid debt If you're really struggling to stretch the paycheck to set something aside for retirement, this is the time to make some changes.
Give your budget needs a major overhaul. Consider getting a roommate or picking up an extra job for the time being. Big changes now, coupled with consistent saving over time, will reap huge rewards down the road, says Jones. He speaks from experience. Jones took a year off from college to work so he could pay off credit card debt. It wasn't easy but, he says, "I graduated debt-free."
Lamb has already seen how a little financial discipline reaps big rewards.
"Making my bills is my No. 1 priority before anything else. I don't buy new clothes. I cook at home. And I don't drink, which is a big money-saver. People go out and will spend $100 on alcohol in one weekend. I don't do that," she says.
Yet she does let herself have occasional "big purchases," like a house recently bought with her fiance.
"I really wanted one," she says. "And I made it my goal."
This article was reported and written by Leslie Haggin Geary for Bankrate.com.
Instead, play it aggressive, and put 90% of your investments in stocks, says Ellen Rinaldi, executive director of investment planning and research at mutual funds giant Vanguard. Stocks are interchangeably referred to as equities, since as a stockholder you own a slice of the company's value in the market, its equity.
"From an allocation viewpoint, someone in their 20s has a very long horizon, so they can handle the ups and downs of the market," says Rinaldi. "They can recover from a downturn. As a result, they should be heavily invested in equities."
You can hedge against the risk of loss by diversifying your investments. That's a fancy way of saying you want to own as many different types of stocks as possible, and it's a message that will hold true throughout your lifetime. That means steer clear of buying a single stock and look to mutual funds, a tradable vehicle made up of sometimes hundreds of different investments in widely varying quantities. They could be made up entirely of stocks, bonds, a combination of both or simply track the market by holding equal amounts of all shares in a given index, known as an index fund.
So-called lifestyle or life-cycle mutual funds make it especially easy for novice savers to buy a diversified array of stocks that are tailored to their age and retirement goals. That's because these funds are set up to automatically pick and choose the equities in the fund, and to rebalance those holdings over time, buying and selling shares in order to maintain the advertised mix of risk and return (or caution and predictability) by age bracket.
"Look for retirement funds targeted to your age bracket. They'll be much more aggressive for someone in their 20s," says Rinaldi. "If you just look for a balanced fund, you may wind up with 40% of your money in bonds, which is a typical mix for these funds."
Get educated Meanwhile, don't be embarrassed to admit that financial talk can seem confusing. After all, financial know-how is not genetically encoded and, unless someone has taken the time to teach you about finance, you'll need to do a little learning. And now that you're starting to make and save money, this is the perfect time to educate yourself.
More than a third of companies now offer employees access to advisers who can help choose investments that will be most appropriate, according to Hewitt. These advisers can explain what holdings are in a particular fund and why they'd recommend one investment over another. Read books, articles or financial Web sites. The more you know, the easier it will be throughout your career to make solid, informed decisions.
"I think the reality is most parents are more inclined to talk to their kids about sex education than talk to them about finance or saving for retirement," says Jones. "That's just not a conversation people have, so a little Finance 101 is probably a good idea."
Build a strong defense with an emergency stash What's next? Start amassing an emergency fund so you don't have to rely on credit cards -- and possibly bury yourself in debt -- in the event that your car dies, your roommate comes up short on rent or you suffer some other financial mishap. Ideally, you'll stash up to three months living expenses, but the important goal is to save something. You can help stay on track by having automatic deposits made to your emergency account.
In the meantime, keep an eye on spending. Those splurges can add up fast and will prove to be a huge drain on future savings. What's more, if you pile on debt, you'll wind up wasting a lot of money on interest and fees that could be better spent elsewhere.
Avoid debt If you're really struggling to stretch the paycheck to set something aside for retirement, this is the time to make some changes.
Give your budget needs a major overhaul. Consider getting a roommate or picking up an extra job for the time being. Big changes now, coupled with consistent saving over time, will reap huge rewards down the road, says Jones. He speaks from experience. Jones took a year off from college to work so he could pay off credit card debt. It wasn't easy but, he says, "I graduated debt-free."
Lamb has already seen how a little financial discipline reaps big rewards.
"Making my bills is my No. 1 priority before anything else. I don't buy new clothes. I cook at home. And I don't drink, which is a big money-saver. People go out and will spend $100 on alcohol in one weekend. I don't do that," she says.
Yet she does let herself have occasional "big purchases," like a house recently bought with her fiance.
"I really wanted one," she says. "And I made it my goal."
This article was reported and written by Leslie Haggin Geary for Bankrate.com.
To get rich, start saving in your 20's part 1
To get rich, start saving in your 20s
Even if money is tight, this is the time to start stashing away money. Start small, start now.
It's easy to understand why retirement doesn't loom large on the horizon for 20-somethings. Young workers are more concerned with kick-starting careers, not ending them in the long-distant future.
But it's worth noting that the very fact that you're young gives you a huge edge if you want to be rich in retirement. That's because when you're in your 20s, you can invest relatively little for a short period and wind up with far more money than someone older who saves much more over a longer period.
Consider this scenario: If you begin saving for retirement at 25, putting away $2,000 a year for just 40 years, you'll have around $560,000, assuming earnings grow at 8% annually. Now, let's say you wait until you're 35 to start saving. You put away the same $2,000 a year, but for three decades instead, and earnings grow at 8% a year. When you're 65 you'll wind up with around $245,000 -- less than half the money.
Seems like a no-brainer, right? Save a little now and reap big rewards later.
Unfortunately, many of today's youngest workers pass on the opportunity to save for retirement early, when the beauty of compounding interest can work its magic and maximize savings. A recent study by human resources consultant Hewitt Associates found that just 31% of Generation Y workers (those born in 1978 or later, now in the thick of their 20s) who are eligible to put money into a 401(k) retirement savings plan to do so. That's less than half of the 63% of workers between ages 26 and 41 who do invest in employer-sponsored savings accounts.
Start saving ASAP There are plenty of reasons you may have yet to save, such as cash flow. If you're struggling to pay off student loans or cover rent, funding a 401(k) may seem difficult if not downright impossible.
But be wary of letting expenses become an excuse, says Brian T. Jones, a certified financial planner and the author of "Getting Started: The Financial Guide for a Younger Generation."
"These years of saving in your early 20s are your prime years. If you deny yourself the opportunity, it will just set you back with retirement planning in the long run," says Jones. "You've got to have balance."
Sign up for that 401(k) Make the most out of those few dollars you can get hold of by allocating them wisely. Don't squirrel them away under the mattress. You will want them to be invested in a way that will encourage your assets to grow as quickly as possible.
Where to start? If you're eligible to participate in a 401(k) at work, do so. There are plenty of reasons to love these plans but No. 1 by far is that most employers match your contributions in order to encourage your participation. The hitch: Oftentimes, you'll need to save enough to trigger the match.
In a typical plan, employers match up to 3% of your salary, according to the Profit Sharing/401(k) Council of America. When you do sign up, the money you save will be automatically deposited into the plan before it's taxed, so less of your income will be taxed now. That saves you money, too.
That's what Rebecca Lamb has discovered. The 28-year-old Connecticut resident works in a nonprofit organization so she saves in a 403(b), which is similar to a 401(k) though they often don't allow company matching. These days, Lamb can't afford to plow huge sums into the plan, but she saves what she can. She also has a savings account that she opened when she got her first job at 15.
"I'm a disciplined person. I put in little amounts and save what I can. If it's $20, I put that in. If it's $100, I put $100. I've always done that," she says. "I'm just trying to save what I can right now. Hopefully, in years to come, I'd like to think I could put more way. But right now I'm just trying to save what I can because every little bit counts. I don't get caught up in the numbers."
No company retirement fund? Use a Roth instead If you aren't eligible for a retirement fund at work that gets you matching funds, sign up for the next best thing: a Roth IRA. You'll fund this with money that's already been taxed as part of your normal paycheck. But money in a Roth IRA withdrawn later is tax-free.
This year, you can put up to $4,000 in a Roth, but don't let that number scare you off if it seems far too rich for you today. Save what you can. It will add up. If you are able to sock away $4,000 a year into a Roth for 40 years, and if it earns 8% annually, you'll be a tax-free millionaire at retirement.
To make sure you stick to saving, have a portion of your paycheck or payments from your bank account automatically deposited into the Roth each month or every few weeks.
This article was reported and written by Leslie Haggin Geary for Bankrate.com
Even if money is tight, this is the time to start stashing away money. Start small, start now.
It's easy to understand why retirement doesn't loom large on the horizon for 20-somethings. Young workers are more concerned with kick-starting careers, not ending them in the long-distant future.
But it's worth noting that the very fact that you're young gives you a huge edge if you want to be rich in retirement. That's because when you're in your 20s, you can invest relatively little for a short period and wind up with far more money than someone older who saves much more over a longer period.
Consider this scenario: If you begin saving for retirement at 25, putting away $2,000 a year for just 40 years, you'll have around $560,000, assuming earnings grow at 8% annually. Now, let's say you wait until you're 35 to start saving. You put away the same $2,000 a year, but for three decades instead, and earnings grow at 8% a year. When you're 65 you'll wind up with around $245,000 -- less than half the money.
Seems like a no-brainer, right? Save a little now and reap big rewards later.
Unfortunately, many of today's youngest workers pass on the opportunity to save for retirement early, when the beauty of compounding interest can work its magic and maximize savings. A recent study by human resources consultant Hewitt Associates found that just 31% of Generation Y workers (those born in 1978 or later, now in the thick of their 20s) who are eligible to put money into a 401(k) retirement savings plan to do so. That's less than half of the 63% of workers between ages 26 and 41 who do invest in employer-sponsored savings accounts.
Start saving ASAP There are plenty of reasons you may have yet to save, such as cash flow. If you're struggling to pay off student loans or cover rent, funding a 401(k) may seem difficult if not downright impossible.
But be wary of letting expenses become an excuse, says Brian T. Jones, a certified financial planner and the author of "Getting Started: The Financial Guide for a Younger Generation."
"These years of saving in your early 20s are your prime years. If you deny yourself the opportunity, it will just set you back with retirement planning in the long run," says Jones. "You've got to have balance."
Sign up for that 401(k) Make the most out of those few dollars you can get hold of by allocating them wisely. Don't squirrel them away under the mattress. You will want them to be invested in a way that will encourage your assets to grow as quickly as possible.
Where to start? If you're eligible to participate in a 401(k) at work, do so. There are plenty of reasons to love these plans but No. 1 by far is that most employers match your contributions in order to encourage your participation. The hitch: Oftentimes, you'll need to save enough to trigger the match.
In a typical plan, employers match up to 3% of your salary, according to the Profit Sharing/401(k) Council of America. When you do sign up, the money you save will be automatically deposited into the plan before it's taxed, so less of your income will be taxed now. That saves you money, too.
That's what Rebecca Lamb has discovered. The 28-year-old Connecticut resident works in a nonprofit organization so she saves in a 403(b), which is similar to a 401(k) though they often don't allow company matching. These days, Lamb can't afford to plow huge sums into the plan, but she saves what she can. She also has a savings account that she opened when she got her first job at 15.
"I'm a disciplined person. I put in little amounts and save what I can. If it's $20, I put that in. If it's $100, I put $100. I've always done that," she says. "I'm just trying to save what I can right now. Hopefully, in years to come, I'd like to think I could put more way. But right now I'm just trying to save what I can because every little bit counts. I don't get caught up in the numbers."
No company retirement fund? Use a Roth instead If you aren't eligible for a retirement fund at work that gets you matching funds, sign up for the next best thing: a Roth IRA. You'll fund this with money that's already been taxed as part of your normal paycheck. But money in a Roth IRA withdrawn later is tax-free.
This year, you can put up to $4,000 in a Roth, but don't let that number scare you off if it seems far too rich for you today. Save what you can. It will add up. If you are able to sock away $4,000 a year into a Roth for 40 years, and if it earns 8% annually, you'll be a tax-free millionaire at retirement.
To make sure you stick to saving, have a portion of your paycheck or payments from your bank account automatically deposited into the Roth each month or every few weeks.
This article was reported and written by Leslie Haggin Geary for Bankrate.com
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