What steps can I take to have a secure financial future?
I am 18 and currently a student enrolled in college. I would like to know what are some important steps to take as I get older to ensure a good financial future? What can or should I be doing with my money? What are some important factors that can affect me? What should I avoid? What should I do as I get older?
You’ve asked about important steps about securing your financial future. In fact, you’ve actually taken the most important step: the first one. By starting to ask these questions and think about your future, you’ve already begun the process of ensuring a lifetime of financial security. As a student, likely with little to no current income, you should first put together a monthly budget. If you have current income, it’s ideal (though certainly not always possible while in college) to begin to set aside some savings. Regardless, it’s wise to get in the habit of creating and following a monthly budget. When you get a job after school, you’ll already be better prepared to manage and monitor your income and spending while setting aside a certain percentage for savings.
If you have student loans, starting to save now will give you a leg up as you begin to pay off the debt after college. During college, students commonly make the mistake of incurring significant debt that becomes a burden as you start your career. Specifically, credit cards debt mounts faster than you think, and high interest rates can make the problem worse. Also, don’t go out and spend money on big ticket items that only depreciate in value. The new car may look cool on campus, but might really hurt your bottom line. Sticking to a realistic budget can help to avoid these pitfalls. Spend within your means and you’ll be on the right track.
As you enter the workforce, the general goal of saving as much as possible continues. A 401(k) plan, if offered by an employer, is a great tool to start to build your retirement savings at an early age. As you start to earn more and have a clearer picture of your future goals, you should spend time with a financial advisor to determine what other financial planning strategies are best for you.
Great question, from an 18-year-old. So lets see what I can do to help. The key to a successful financial future lies in your ability to live at a level below your income. If this can be accomplished, you will be able to save money beginning on the day you take your first job. This is not necessarily easy when you begin because their are expenses that have to be dealt with such as rent, utilities etc. If you have the opportunity, accept a position of employment where the employer offers a 401(k) plan or a 403-B Plan. These plans allow you to make contributions from salary and will simultaneously reduce your taxable income by the amount of the contribution. In many cases, most employers will provide some form of a match if you voluntarily make your own contribution to the plan. As an example, an employer might be willing to pay into your plan 50% of the first 6% of salary you assigned to the plan. While this plan is in effect, the goal is to try to get to the maximum contribution level over a period of time without affecting your lifestyle. Each and every time you get a raise, consider the possibility of putting half of the raise into the plan thereby increasing your percentage to what, over time, may be the maximum allowed by law. This is an extremely tax efficient way to save money using not only your funds, but your employers and also the taxes you would've paid to Uncle Sam. Keep in mind that savings will always conflict with lifestyle. At some point you may get married, buy a home and have children and every dollar you set aside for education is one less dollar you have for retirement and for financial security. If you and your spouse are capable of controlling your expenses during your lifetime, the goal would be to attempt to financially retire at age 55 rather than 65 or 66. Whether you actually retire at 55 is irrelevant. What is relevant is that you might have the ability to retire at 55 and that is the definition of financial independence. Income is only one source of retirement savings and/or any kind of savings but more importantly is controlling your everyday expenses. Start out with a budget with as much detail as you possibly can and try to work within the budget. No questions exceptions will arise and they will be dealt with as you will have the necessary excess cash to deal with them on a current basis. I sincerely hope this helps and I wish you much success.
As a college student, the best advice I can offer is to avoid student debt as much as possible. I have seen many people who accumulated 6-figure loan balances through college. This is a strong, financial headwind to face when you begin working. Rather, find ways to work through college and pay your way as you go. It may not be easy at times, but it will be worth it in the long run. After that, make it a point to under spend your income. Put away at least 5-10% per year for your future. This, too, will help prevent debt from accumulating in your financial life. Don't let compound interest work against you. Best of luck to you!