3 Savings Tips for New Graduates

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New graduates should start saving money ASAP. These tips will help you make smart choices about saving and investing for your future. 

If you just graduated, you may be overwhelmed with all of the different financial decisions you now have to make. You’ll have to decide everything from how to spend your new post-graduation salary to where to live and how much to spend on getting your new apartment or house set up.

As you focus on all the different money issues you must address, it’s important to make saving money a priority. This can feel difficult if you haven’t established saving as a habit yet, but these three tips can help.

1. Start saving now, even if it’s a small amount

If there is only one piece of financial advice you follow as a new grad, this one should be it. You should start saving some money now. Do not put it off until later and do not make excuses. Even if you have lots of debt or are just getting started out and have a lot of expenses, you should save something, even if it is a small amount.

Once you start saving and investing for your future, you start to benefit from the power of compound growth. And the more time you have for compound growth to work for you, the easier it is to build wealth.

Say you want to become a millionaire by the age of 65. If you start putting aside money beginning at age 21 when you’re a new college graduate, you would only have to save $127.68 per month, assuming you earned a 10% average annual return. That is not a huge sum of money.

But, if you waited until age 30 when you were more “settled,” the amount you’d need to save each month would go up to $307.47 per month. More than double. And the longer you wait, the more you’ll need to invest.

It’s not really going to get easier to come up with more money as you take on new responsibilities like homeownership or children. So, do what you can to save as much as you can now, even if it’s not a ton. It will really pay off for you.

2. Put your money in the right places

The next crucial thing to do as a new grad is to put your savings in the right places. If you are saving for retirement, you should choose a tax-advantaged account like a 401(k) or IRA as these accounts can provide you with tax breaks for savings and perhaps entitle you to a company match in the case of a 401(k).

When you get tax breaks, this makes it easier to invest. If you are in the 22% tax bracket and invest $1,000, you save up to $220 on your taxes so your investment may end up only reducing your take-home income by $780. And if your company matches your 401(k), that’s free money. If you have a 100% 401(k) match and you invest $1,000, you’ve effectively spent $780 of your own money and ended up with $2,000 in your investment account.

If you have a 401(k) at work, sign up for that first with HR and contribute enough to get your full employer match. After that, you can either continue investing at work or open an IRA with a brokerage firm so you get more investment choices than your 401(k) offers.

You should also have some savings for short-term goals and for emergencies in a high-yield savings account. Ideally, you’ll want to work up to having three to six months of living expenses in an emergency fund. And you can set your own short-term goals, such as buying a car or house, and decide how much to save for them based on your costs and timeline.

3. Make it automatic

Finally, once you have decided how much you can afford to save, automate the process. Set up a transfer of money to your brokerage account and savings account to come out of each paycheck before you get the cash. That way, you will make savings a consistent habit and won’t have to continually force yourself to be responsible.

By following these three tips, you can make sure you’re really prepared and ready to succeed post-college.

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