Saving and Investing When You're Just Starting Out

Congratulations! After all the classes, exams, late nights, early mornings and interviews (so many interviews), you actually get to start the career you’ve spent the majority of your life working towards.

In addition to the millions of things you need to keep track of at your first real job, you also need to start thinking about putting your financial house in order.

You might be thinking, "That sounds good, I want to do that—I like the idea of order in my finances. But what does that really even mean? There are so many terms: Roth, W-4, 1099, dollar-cost averaging, volatility, FDIC, stocks/bonds, ETF, mutual fund, automated trading platform…blah, blah, blah." 

Things can get complicated very quickly, and the reality is each person’s journey is unique. The good news is there are a couple of common themes to keep in mind when starting your expedition into the land of independent fiscal responsibility.    

1. Pay Yourself First

Before you spend any money on food, clothing, housing, entertainment, debt, whatever you can think of, be sure you have put aside something for yourself. The amount changes depending on the goals you want to achieve. 

Buying a house, starting a family, opening a business, and retiring early are all goals that require financial resources to accomplish. Think about where you want to end up before you start. (For related reading, see: How to Save to Start an Investment Portfolio.)

Even if the amount you set aside is small to begin with, just start doing it. You need to get into the habit of saving regularly and consistently at the beginning of your career. This will reap huge dividends for you in the future.

2. Invest Your Savings Prudently

Many people will come to you with ideas about how to invest your money. Be critical, be cautious and ask questions. You are ultimately responsible for ensuring you are working with someone who:

  1. Is highly experienced within the field of personal finance
  2. Possesses the tools and knowledge to guide you on the right path
  3. Is required to place your interests ahead of his or her own (i.e. acts as a fiduciary).

Ask as many questions as you can. Learn how the person you are speaking with is paid. Ask them to explain their underlying assumptions. Go beyond the materials presented to you and dig into the details. Ask if they invest their own money this way, and if the answer is no, find out why.

3. Appreciate Your Greatest Asset—Time

Right now, the most powerful force you have on your side is time. The dollars you invest today can grow and work for you for the rest of your life. Those dollars earn more dollars, which, in turn, earn more and more. This phenomenon, known as compound growth is extremely powerful, but it takes time. Come to terms with the fact that this is a lengthy process, do not get discouraged, and enjoy the ride.

This is just the beginning. (For more from this author, see: How Our Investing Habits Matter.)