(1) Invest
Max out your company 401(k). A 401(k) is a retirement savings and investing plan that employers offer. A 401(k) plan gives employees a tax break on money they contribute directly from their paychecks. It’s then invested in funds of the employee’s choosing.
If your company matches up to 3-6% make sure you get that free money. Separate from a 401(k) you should also invest in a Roth IRA. As described on investopedia.com, a Roth IRA is an individual retirement account (IRA) that allows qualified withdrawals on a tax-free basis as long as certain conditions are satisfied. The biggest difference from a traditional IRA is that Roth IRAs are funded with after-tax dollars; the contributions are not tax-deductible. But once you start withdrawing funds, the money is tax-free
As soon as you have income coming in, consider investing a portion of it. If I had put away 15-20 percent, I could be sitting on close to half a million or more. If you started with $5000 (graduation gifts, summer job, side hustles) and contributed $12,000 per year ($1000 per month) for 20 years based on an average return of 6 percent, you would potentially yield about $450,000. The goal is to continue to increase your income so as you make more you invest more than that $12,000 per year. But just investing the $15,000 still sets you up for success.
Put it on auto withdrawal, stay consistent and never touch your investments. By 40, even if you never contributed again, you would be in a good situation because of compound interest. Compound interest (or compounding interest) is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. Because compound interest includes interest accumulated in previous periods, it grows at an ever-accelerating rate. The later you start, no matter how much you contribute, you cannot catch up with the person who started at 22.
Tip: Build and keep an emergency savings so you never have to tap into your investments.
(2) Credit (cards) can be good
Credit cards or credit generally can be good if it’s used as leverage to make more money but not to buy things you can’t afford. Use credit cards to build your credit. You need a solid payment history over a good length of time. So the earlier you can start building credit the better. I applied for my first credit card my freshman year in college. However, just make sure you have the money to pay the people back and on time.
Building credit allows you access to the best (lowest) interest rates when making a purchase whether it’s a house, car, or to obtain a loan. Credit gives you access to invest. For example, let’s say you want to flip a house. You can use credit (loan) in order to buy the house and make the repairs. Good credit says when they front you the money for the house and repairs, you will actually pay them back. So in this case you would have leveraged credit to make money. This doesn’t mean you don’t have the money or cash but why would you want to use your cash if you can use the bank’s money? Whatever you do make sure if you do use credit, you have the means to pay it in full or if you must carry a balance keep your utilization under 10 percent. Your credit utilization rate, sometimes called your credit utilization ratio, is the amount of revolving credit you’re currently using divided by the total amount of revolving credit you have available. In other words, it’s how much you currently owe divided by your credit limit. It is generally expressed as a percent. Do not go buying clothes, food, and frivolous things on credit.
Tip: if you can’t purchase it twice in cash without heartburn and it depreciates you probably shouldn’t buy it anyway!
(3) Buy a home
Purchase a single-family home. Make sure it’s within your means and less than 30 percent of your monthly take home. So, if after taxes you take home $4000 a month you should look to pay around $1200 or less a month. In your early 20s, it’s a major hack to have roommates if you own a home. Your friends can rent a room. They will help you pay down the principal on your mortgage and you can also build equity through appreciation if you hold it for a few years. I would hold my first property for as long as I could then make it a rental property or sell it at its appreciated price. You can then use the profit as a down payment on your next home. Renting provides flexibility; however, you are giving away dollars you will not get back. If done right, you can get back the money spent toward your principal and some when you purchase a home and later sell it for higher. I know many people who still own their first home. As a rental property, it’s an additional stream of income. I also know folks who sold their first home and walked away with over $100K in profit. This isn’t the exception. If you make the investments early in life you are guaranteed to win!
Also Read: Why I went back to my high paying job after quitting corporate
(4) Travel the world!
Travel now! Study abroad in college. Plan trips with friends around the world. Don’t limit yourself to places near or within the United States. Make a goal to visit every continent. Look for opportunities to live abroad for a few months. I have many friends who were in programs that taught English in different countries. Make sure to take in the experience of learning about the different cultures, people, and foods. If you can’t find people to travel with join a travel group or venture out on a solo trip. Make a list of everywhere you want to visit. Take pictures and record videos, live in the moment while you are there.
Also read: The Skinny on Will Smith’s New Book: 5 Key Takeaways
(5) Be assertive in your career
If there is something you want to do or if you have an interest, go do it now! If you want to work for a particular company; do your research, find people who work there who can refer you and apply for the job. Ask questions – there is never a dumb question. This is the time to really learn the ropes and people will be much more willing to hold your hand through the process when you’re younger. Find mentors – whether official or unofficial. The key is finding someone who is doing what you want to do and find a way to provide value to them. For example, if you want to be a writer and you know an amazing writer, reach out to them to see if you can proofread their work. Maybe you want to be a baker, find a local bakery and volunteer your time to clean and prep. People are much more willing to help when there is something in it for them. Remember that no one will make you successful. You must make it known what you want to do and most importantly you must be willing to do the work. Bet on you!
Bonus Tip:
Don’t put all your eggs in one basket This one is pretty simple. Whether it’s relationships, a job, business, or investing – diversify and keep your options open!
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