You've done it – you've landed your first real job. And, you have money – to spend! Before blowing it on everything you can get your hands on, consider stashing some of it away. By getting into the habit of investing now, you can be set for life. Joe Saari, president and CEO, Precision Information, LLC, a leading provider of financial education materials, says following these simple steps can help provide you the financial security you'll need later on:
- Start saving. Spend less than you make and get your debts under control. Establish and maintain good credit.
- Build a cushion of cash in a money market account "just in case." Experts suggest three to six months' of living expenses. You don't want to be one of many who open an IRA (individual retirement account) or 401(k) only to pay a 10% penalty tax to use the money to cover an unexpected expense.
- Keep a low-interest line of credit or credit card open (with a small or no balance) just in case of an emergency. Sun Federal CU can help you obtain these credit tools and will help you with all your financial needs.
- Carry health insurance. You'll limit the risk that unforeseen medical expenses would require you to tap into retirement savings.
- Do your homework. Take the time to become familiar with terms and concepts. Even if you're not going to manage your own money, you need to know enough to be an informed consumer and know who to trust. Warren Buffet, one of the world's richest men and a leading investing pundit, says he does not invest in anything he does not understand. You shouldn't either.
- Determine your goals and what you want to achieve. If you don't know where you're going, any road will take you there. But if you have a particular destination in mind--say, retirement)--you need to have a goal and set a realistic path to reach it.
- Build a plan that will take you where you want to go. Whether you're working with a financial adviser or you want to travel solo, you need to plan. Realize things will change along the way but you need to set short- and long-term goals to keep moving in the right direction
Now you can invest:
- Once you've taken care of the above (setting aside savings, getting insurance, and so forth), take advantage of your employer's 401(k). Many employers match a portion of your contributions. If you don't participate, it's like losing free money. Plus, the programs are tax-deferred. Pay attention to the details of picking proper investments to help you meet your goals.
- Assuming your 401(k) has a good range of investment options with reasonable fees, you may want to max it out before looking at other options like IRAs. But be sure that doing so is consistent with your goals. On the other hand, consider that first-time homebuyers can build a down payment for a house in a Roth IRA and withdraw the funds (within limits) without penalty.
Do's and don'ts
- Don't invest all your money in one stock (including your own company's stock). Far too many American's are overexposed in the companies they work for. Remember Enron?
- Don't invest in anything you don't understand. If you can't figure out what the investment does or is supposed to do, you shouldn't invest. That's called gambling, not investing.
- Do your homework. Take the time to learn about the options and save.
- Read, learn, enjoy, and ask a lot of questions. There are no dumb questions when it comes to your money. In fact, most Americans say they don't know enough to make sound investment decisions, so you're not alone.
*Neither CUNA nor the author of this article is a registered investment adviser. Readers should seek independent professional advice before making investment decisions.
Copyright 2013 Credit Union National Association Inc. Information subject to change without notice. All other rights reserved.