Money Musings 💭 if I only knew this at 🎓
If I only knew then what I know now... sigh.
There are SO many things I wish I knew about money when I graduated from college. Anyone else?
In honor of the many college graduations taking place across the globe, I’m going to share the top 6 things I wish I knew.
Start saving as soon as possible. If you wait to start saving until you have “extra money” laying around at the end of the month, you’ll never save anything. You can start small but don’t wait to start. Make your life easy by making it automatic. Eventually you’ll want to build a rainy day fund with at least a few months of expenses.
If you have a company 401(k) plan, use it. This is a benefit not offered to many people and there are some major tax benefits. If your company offers matching, that’s even more incentive. You can increase your contributions by 1% over time. If you don’t have a company 401(k), you can still save for retirement with an IRA.
Get renters insurance. It’s not expensive and it covers everything in your apartment, even if it’s stolen outside of your apartment. Don’t forget to put your roommates on the policy. Still so sorry Ashley! Ashley was my roomie and still bestie who was not included on the policy and couldn’t make a claim when she needed it.
Credit cards are not free money. Most credit cards come with a very steep interest rate. While they are an important lifeline for many, especially during the pandemic and Shecession, know that carrying a balance will cost you - usually at a compounding rate of 15-25%. Think of it like paying at least 15-25% more for the things you bought.
Budgeting is an act of self-love. Call them budgets, spending plans, or happiness allocations (my fave term). Planning out your income and expenses by month is a hugely eye-opening and liberating process. I used to think it would be restricting and would limit my fun, but it’s actually the opposite. You can build in your fun - guilt free. Here’s a template to help you get started.
It doesn’t hurt your credit score when you check it. (Only when others like banks and loan companies make a “hard inquiry” into it.) You might not need your credit score for anything right now but it takes time to build it.. Check your three credit reports for errors (annualcreditreport.com) and then check your credit score at MyFico or Credit Karma to get tips on increasing your score.
If you are going to be a high earner right out of college, watch out for financial advisors selling you whole-life or any kind of permanent insurance. It doesn’t make sense for 99% of people.
What’s the #1 thing you wish you knew? Hit reply and let me know. I’ll compile a list of yours and share them here as well!
If you know a recent grad, please forward this along! How amazing would it be to start your post-grad life with the nuggets you wish you knew?
PS On June 24th at 5 pm EST Amanda Holden (aka @dumpsterdoggie) is hosting a FREE retirement workshop for The Fiscal Femme community called IRA - 401K - WTF: Understand and Set Up Your Retirement Accounts. Hope you can make it!
MONEY MOVE OF THE WEEK
WHAT ARE YOUR 401(K) INVESTMENT OPTIONS? ?
Now that you have some basic information about your retirement account, we can talk about making that money grow (if you missed this money move, you can catch up here).
First and foremost, we want to make sure the money in your 401(k) is invested - that means NOT sitting in cash or a money market fund. 401(k)s come with a list of fund options, curated by the plan provider and your company. You’ll want to research some key things - like what the fund is invested in and what the expense ratio is. The goal is finding some good low-fee funds.
If you have an IRA, there are not specific investment options, you can invest in anything you could with your regular brokerage account. This article walks you through how to set up your retirement account (and makes it as easy as possible).
YOU GOTTA SEE THIS
DEFINE ROTH VS. TRADITIONAL.
Define: TRADITIONAL VS ROTH. I’m frequently asked about the difference between a Traditional and Roth IRA (or 401(k)). The biggest difference is the tax treatment. Roths are funded with post-tax dollars and Traditional accounts are funded with pre-tax dollars.
"Fun" fact: There is no difference between the amount of money you’ll have in a Traditional vs. a Roth account if your tax rate is the same when you contribute the money as it is when you take the money out.
Another "fun" fact: We have until the tax deadline (typically April 15th) to max out our Individual Retirement Accounts (IRAs) but typically only until year-end to contribute to our 401(k)s.
Use it in a sentence: “Roth accounts are best for those who believe their tax rate will be higher in retirement because they will be earning more when they reach retirement age than they are now.” 💰