Are you a recent college graduate? Have you landed a full-time job? If so, then stick around. Launching a new career is exciting; however, we need to make sure you manage your finances responsibly. Most young adults are notorious for overspending, partying, and not investing their money. While the occasional personal gift now and then will not set you back dramatically, the overall compound effect of ‘spending’ money regularly will.
Most 22 – 25-year old’s do not think about retirement. Heck, most do not even know what a Roth IRA or a brokerage account is, nor do they know how to open an account. You may also be asking yourself; how do I start investing? To help you, make these three money moves today to enjoy a financially secure retirement and a debt-free life.
1. Open a Roth IRA
Believe it or not, opening a Roth IRA as a fresh college graduate is the smartest financial decision you can ever make. Formally known as an Individual Retirement Account, a Roth IRA is an investment vehicle that helps you save and invest money for your retirement.
This account provides you with tax-free growth and tax-free withdrawals. This means your money is taxed upfront. But, by the time you are 65-years old, and you want to withdraw your money from your Roth IRA, it is not taxed! Why is this a big deal? Well, on average, the stock market returns a healthy 7.0% – 8.0% annually. Essentially, your money has about 30 – 40 years to compound and grow tax-free. In a standard brokerage account, you would face a nasty capital gains tax. Remember, the earlier you start contributing to your Roth IRA the better.
2. Pay Off all Outstanding Debt
Apart from setting up a Roth IRA, the next thing you need to focus on is paying off your student loans or any outstanding debt. No one likes debt! The faster you can escape debt, the better. You can use those monthly payments towards other profitable ventures, such as contributing to your Roth IRA, which we discussed above. Or you can save that money towards your first down payment. Regardless, debt is a sure shot way to slow down your journey towards financial freedom.
3. Start Investing
Most young adults are afraid to start investing – rightfully so. However, it is easier than you think. There are so many platforms out there that can help you begin investing within 10 minutes, regardless of how much capital you have available. For example, M1 Finance is a FinTech platform that will help you automate your investment strategy. You can set it and forget it with M1 Finance. Investing is a long-term game, so take the time to research investment platforms before you start.
These financial moves are easy to make and will not take up much of your time to get started. If you are like me and you love to plan ahead, then these three money moves need to be a top priority of yours. As simple as they are, most young adults will ignore this generic advice and will continue to waste their money. But, if you want to retire financially secure and want to make more money, then what are you waiting for? Get started!