Investment strategies should be one of your top priorities upon graduating college.
For those preparing to graduate from college this month, this post is for you.
If you have been following us, you may have read last week’s post regarding financial mistakes to avoid upon leaving your past four years of sanctuary. This week, we would like to discuss wise investment strategies for you as you (hopefully) begin interviewing more and potentially accepting promising job offers.
If you did not study finance or economics in your undergrad and you have never consulted with a financial planner, investing may seem like a foreign concept to you.
In addition to what we discussed last week, here are some ways you can set yourself up for a promising financial future:
Create a personal spending budget.
By not having a budget for yourself, you are more likely to spend more than you make each month as you begin to see an increase in your bank account thanks to your new job. However, holding yourself accountable will prevent any slip –ups as well as promoting positive spending and saving habits for your future. When everyone tells you to start now, they really are not kidding.
Set up your Individual Retirement Account (IRA).
If you’re lucky enough to land a job that offers a 401K, be sure to always add to it to help increase its value, even if your employer matches. The more you add in now, the better for your future. If you are among the many who do not receive this as a benefit with their place of employment, open an IRA now. A summary of what to look for in a retirement savings account includes:
- First, there are two types: the Traditional and the Roth. Contributions to Traditional IRAs are tax deductible, but withdrawals during retirement are taxed. Roth IRAs are not tax deductible, but withdrawals are generally tax-free. In other terms, you avoid taxes when you put money in to Traditional IRAs, and you avoid taxes when you take money out in Roth IRAs during retirement.
- No-fee IRA’s. Some charge you for simply holding an account with them known as a “custodial fee.” You will want to ask your institution if they charge any fees for hosting the IRA.
- Additional charges. Another question you will want to ask your custodian is whether or not they charge any kind of transaction fee. These are typically charged when you go through a financial adviser to purchase your mutual fund. Be sure to also inquire about other fees that may be associated like contract charges.
It’s often recommended for those starting out their investment portfolio with limited funds to begin with a Traditional IRA. A concern is that individual tax fees for Traditional IRAs could be higher but is not guaranteed. You will want to weigh out all your options with both in order to determine what is best for you.
Ignore Get-Rich-Quick Schemes.
If something seems extremely complicated, it probably is. As a newbie to the world of investing follow the K.I.S.S. rule (“Keep It Simple Stupid”). Choose one source and keep it simple. Over time, you can grow your net worth, but it will be hard to accomplish if you don’t understand what’s happening to your money.
Don’t be afraid to purchase used items first.
The goal and purpose of growing your investment portfolio is to decrease debt. As a college graduate, you will already have loans unfortunately accumulated on your shoulders upon stepping foot off that campus for the last time as a student. So, buy used items and live below your means. You will work your way to having those nicer items much faster by choosing to spend less now.
Know your assets.
In this previous post, we discussed what comprises of an asset and what does not. In summary, an asset is something that puts money in your pocket; not removes it. Consider this as you make big purchases over the next few years.
Choose the right savings account.
If you are already excellent at saving money, that’s awesome! But, did you know you can make it a little more worth your while? Have your savings pay you back by choosing the right type of account to increase your investment will waive some worries for you in the future. Some to consider are:
- Online Savings Account: Earning potential is higher.
- Money Market Deposit Accounts: Despite minimum balance requirements and monthly fees, the interest paid is typically higher than that of traditional savings accounts.
- Certificates of Deposit (CDs): Another opportunity for higher interest rates paid, but limitations do apply for withdrawals.
- Automatic Savings Plans: Can help you obtain lower banking fees.
As always, and with any choices you make, be sure to do your research and ask a lot of questions to see what fits you best.
Invest in an emergency fund.
This may not seem important, but with the economy so up and down, you will want to be prepared for the worst. I’ve heard of several stories of companies going under or downsizing, leaving individuals back on a job hunt in an increasingly competitive market. In fact, the company I did my undergraduate internship with closed down several offices, leaving no opportunities for me upon graduating. I watched co-workers one by one receive the unfortunate talk. There is also the possibility of being fired, which I have also heard of from individuals who seemingly held a strong position in their occupation. It happens, and you need to be prepared. The recommended strategy is to save six months of savings to keep you afloat in case of an emergency.
Invest in higher payments to your student loans.
Only paying the minimum on your student loans will keep them hanging over your head longer, and thus, keeping more debt in your life longer. The average time it takes for a college grads pay off student loan debt is 21 years. It doesn’t have to be this way though.
Make your future better and financially more stable through these tactics and tips.
Do you already have an investment strategy in place for when you graduate?