So you're starting your life on your own, now....
It's time to make some decisions so that these years are among the best years of your life. There are some things that you can make sure you have, and some things you need to make sure you avoid, in order to have the best possible experience, the least stress, and the most probability of achieving your goals.
The main thing to keep in mind is:
Add Assets. Limit Liabilities.
Avoid debt like the plague.
Not only will whatever you buy with debt cost you more: it will cost you more for longer. It is far better to save up and go without until you can afford to pay for it all at once. This is called the "One Payment Plan" and it rocks!
Add Assets by saving and investing. Every little bit that you save and invest now will pay you dividends from that time forward, and that compounding growth is the magic road to wealth. Save Save Save. Invest. Invest. Invest.
The other thing to keep in mind is:
Keep your expenses low!
Your savings rate determines the length of time that you have to work to save for retirement.
The more you can save, the sooner your retirement will come. This was already discussed some here.
The more you can save, the sooner your retirement will come. This was already discussed some here.
Since you are starting out, you can consciously choose low-cost, low-expense options and live your life that way - intentionally, putting you far, far ahead of everybody who realizes too late that they're spending too much and has to try to figure out how to reign in an out of control spending habit and expensive lifestyle choices.
If you can balance those two things to keep in mind, with your desires for the things that you want in life, you can have the best of both worlds. It just takes some up front planning and some conscious decision-making about the inherent trade-offs of each decision.
Practical steps to take:
*Max out all retirement savings options you have.
If you work for a private company, max out the 401(K). See if they have a program to get employees discounted stock, or any other assets.
If you work for a government, in addition to your pension there is likely a 457(B) plan that is sometimes called Deferred Compensation "Deferred Comp" - yup, max it out.
If you have neither of those options, open yourself a Roth IRA and max out your contributions to that.
Those options will not be enough. The 401(K) was only created to supplement already-existing company pensions, back when it was created. You cannot save enough in a 401(K) or an IRA to have enough for retirement. There just won't be enough money in there when you get around to needing it.
*So, you will need to open other investment accounts on your own.
I am currently recommending RB Research's information on how to use Vanguard, if you want to do it yourself.
Or Cambria Asset Management, if you want an excellent personal investment manager - they have some really incredibly intelligently constructed funds that you can own through another broker too, if you like. Check them out here.
*Have an Emergency Fund.
This cash savings account will be there to help you out when some large, unforeseeable expense comes along.
Without an Emergency Fund, you'd be in a position where you would otherwise have to sign up for debt. And since we're advancing to greater, that's not something that is even an option.
You can start small with this, but you quickly want to grow this to the point where it can sustain you through any major personal financial disaster.
Got in a terrible car wreck? Emergency Fund to the rescue.
Can't work for some reason? Emergency Fund is there.
Furnace died? Emergency Fund got you.
*Last - but not least - be careful about your love life and serious relationships.
It is easy to spend waaaay too much in this area of your life, especially if you get serious, and most especially if you get married.
Kids too, are major expenses. And you're on the hook for the cost of rearing them for 18-22 years!
Be sure.
If you cannot be sure enough, protect yourself by finding out about the wonderful world of Trusts.
Trusts are legal entities which own your assets, in the way you want them owned, and they must be used in the manner in which you specify. Find a great estate planning attorney to explain their benefits to you and help you set one up.
Got in a terrible car wreck? Emergency Fund to the rescue.
Can't work for some reason? Emergency Fund is there.
Furnace died? Emergency Fund got you.
*Last - but not least - be careful about your love life and serious relationships.
It is easy to spend waaaay too much in this area of your life, especially if you get serious, and most especially if you get married.
Kids too, are major expenses. And you're on the hook for the cost of rearing them for 18-22 years!
Be sure.
If you cannot be sure enough, protect yourself by finding out about the wonderful world of Trusts.
Trusts are legal entities which own your assets, in the way you want them owned, and they must be used in the manner in which you specify. Find a great estate planning attorney to explain their benefits to you and help you set one up.
