Should investing and saving be a priority for a new graduate? It is an admirable question to put forward, considering how young people leaving school are tens of thousands of dollars in debt and are only now beginning their careers. Funds are minimal right now, especially since employment prospects are in limbo due to uncertain economic conditions.
For many new graduates, personal finance may not at the top of the agenda. When you have completed a four-year degree that has set you back $30,000, it might be challenging to achieve investing or saving success. Still, even when you fall on hard times, you should not allow your accounts to fall behind too.
Unsure where to start? Here are six investing and saving tips for a new graduate:
6 Investing & Saving Tips For A New Graduate
1. Automatic Savings Plan (ASP)
As a new graduate, your time is likely consumed by trying to kickstart your career, having the energy to perform the duties in your part-time job, keep up with your bills, and perhaps maintaining some semblance of your college social life! Who has time for pecuniary issues?
This is why an automatic savings plan (ASP) is one of the best financial products available to grow your money over time, particularly if you don’t have a lot of money or time to start with!
An ASP is simple: you enroll in a program, select how much money you want to be transferred from your checking account to a high-interest savings account or even an all-in-one checking and investing account, and choose the frequency (weekly, bi-weekly, or monthly).
Whether it is a regular contribution of $25 or $100, you’ll hardly notice the deduction, yet you’ll quickly grow a healthy sum of savings.
2. Build an Emergency Fund
Unfortunately, according to most major surveys, many Americans could not cover a $1,000 financial emergency…in fact many don’t have $400 in the bank for an emergency. This is troubling.
Every household should have an emergency fund to fix a broken-down refrigerator, pay for an unexpected medical bill, or cover the cost of a new set of tires.
An emergency fund not only protects you from unforeseen circumstances, it also ensures that you do not resort to touching your retirement savings, long-term investments, or any other source of money that is designated for a specific objective.
3. Just Index It
Like an ASP, index investing is a terrific investing technique for young graduates who do not possess the time or the skill to understand how the financial markets operate.
The lack of knowledge or understanding or basic investment practices is sometimes a hindrance for those who sit on the sidelines and choose to instead allocate their money towards low interest rate accounts.
Therefore, index investing – a passive method of parking your money in a fund that emulates a broader index – can be an easy, stress-free way of engaging in stocks without landing yourself knee-deep in risk.
4. Dividend Stocks
Since new graduates are most likely to be beginning investors, you want to start your investment journey on a high note. The trick? Purchasing dividend stocks.
A dividend is a portion of profits a company makes and distributes every month, quarter, or year.
Indeed, many dividend-paying stocks can give you a decent amount of income that is certainly greater than what you would receive from placing everything you have in a savings account.
Need a place to start? Here are some dependable dividend stocks to research:
- QUALCOMM Incorporated (QCOM): 1.58%
- Starbucks Corporation (SBUX): 1.77%
- Target Corporation (T): 1.47%
- McDonald’s Corp (MCD): 2.4%
- The Clorox Company (CLX): 2.17%
5. CD Laddering
If stocks are not your thing right now, you can still employ a saving-investing hybrid strategy to grow your money. Are you aware of certificates of deposits, or CDs?
A CD is offered by financial institutions that give clients an interest rate in exchange for depositing their money for a predetermined length of time. The kicker is that you cannot touch it.
The problem with CDs is that the rates are low. However, there is a tactic to squeeze out every penny from these no-risk products: climbing the ladder.
CD laddering works like this: you divide the amount of money you wish to deposit into five categories, and you purchase five CDs with different maturities (one year, two year, three year, four year, and five year). When each CD matures, you reinvest the principal plus interest.
This way, you can potentially take advantage of higher rates (hopefully!) and if you need to, access your capital without paying a steep penalty.
6. Is the Roof on FIRE?
FIRE is all the rage for young people these days. It is often promoted by various articles and media personalities discussing how someone in his or her late 20s is close to being a millionaire because of FIRE. So, what is it?
FIRE is a clever acronym for Financial Independence, Retire Early. Essentially, it is a program of extreme savings and maximum investing that minimizes budgets and permits retirement plans earlier than most people are accustomed to all these years.
According to DaveRamsey.com, it is doable if you execute some of these tips:
- Start planning now about your retirement, no matter how young you are.
- Find ways to keep your expenses low.
- Look for ways to increase your income.
- Prioritize your savings and investments.
- Do not mess with credit cards and stay out of debt.
It might be easier said than done, but with some willpower and strategizing, you could perhaps put together a nice little nest egg by the time you reach your 30s! Early retirement, here you come!
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