5 Ways To Start Building A Solid Financial Future: If you’re a new college graduate, congratulations! Now with your diploma in hand, you’re ready to tackle the next phase of your life. To ensure that you move through that next phase—and future phases—with as much financial security as possible, it’s crucial that you start taking smart investing steps now.

There’s tons of advice online on smart investment strategies, but I advise new college graduates to start with the basics. Here are some tips that will give you a head start.

Image Credit: The Savvy Couple

1. Understand That Compounding Is On Your Side

Consider this shocking example from U.S. News and World Report: someone who begins to invest $200 monthly starting at 25-years-old will have more than $520,000 by 65. In comparison, holding off until age 35 to invest the same amount of money per month will yield only about $245,000 by 65. That 10-year wait amounts to losing over a quarter of a million dollars!

Realize that compounding is on your side if you start investing regularly, whether in a company-sponsored 401k or index funds. Putting even $100 in your investment account today, instead of waiting until you’ve raised $1,000 to do so, will give you a good leg up long-term (you’ll be able to earn returns on your returns). I say long-term because the problem with compounding is that your holdings can decrease month to month, but over time, you’ll likely see a general upward trend—and you’ll thank yourself.

2. Diversify Your Portfolio—And Don’t Shy Away From An Aggressive Approach

The barbell approach to investing, advocated by Nicholas Taleb, is one I highly recommend to new college graduates. Essentially, the barbell approach is the investment philosophy that you should invest in both high-risk (short-term) and low-risk (long-term) assets instead of sticking solely to medium-risk options. If you want to build wealth, your best chance at doing so is by making asymmetric bets.

This strategy is especially attractive for young people like you because you have time on your side and can take greater investment risks, more aggressively pursuing certain options. You don’t have as much of a need to rely on a balanced portfolio. For example, you can put 80% of your investments into the S&P 500 and put the remaining 20% into, say, cryptocurrency or a friend’s promising startup. If that 20% takes off, then great! If not, then you at least tried.

3. Consider Starting A Side Hustle

This is a personal belief, but I think it’s important that you get proper experience working for someone else when you’re fresh out of college. Working for other people early in your career will get you far. You’ll build invaluable soft and hard skills and can gain and nurture a professional network.

However, I also advise you to do something entrepreneurial on the side. Doing so helps you grow personally and professionally. For example, maybe you work in the marketing department of a technology company but also have a knack for editing resumes. By starting a small resume editing company after hours, you can generate additional income to invest. What’s more, nothing in life is certain, especially not a job. By having an alternative source of income, you’ll be in a much better position to survive an economic downturn.

4. Avoid Credit Card Debt

You might be facing student loan debt as a new college graduate. Don’t add credit card debt to your worries. Before you purchase that new TV or watch, ask yourself if you can realistically pay it off before starting to accrue interest.

In fact, I advise you to treat your credit card more like a debit card whenever you can. Don’t view your credit card charges as things you can worry about later. Instead, use them strategically, and you can gain valuable benefits, including accumulating rewards, developing a credit history and securing certain purchase and travel protections. If you do find yourself spending more with a credit card, consider taking a break and using physical cash instead (adults tend to spend more when they use credit cards versus when they use physical cash).

5. Make Smart Life Decisions

Bad life decisions, such as marrying the wrong person or purchasing a home that’s too big, can cost you big time down the line. For example, in the United States, a typical divorce costs $15,500. Buying a home with too much space when you don’t need it will rack up your mortgage payments, taxes, utility bills and maintenance costs.

Use your best judgment when making major life decisions. Carefully evaluate each situation, and don’t rush anything. When you combine that discernment with the other steps, you’ll be setting yourself up for a lifetime of sound financial decisions.

Disclaimer: The information in this article is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Source link

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.