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What financial advice would you give to those in their early 20s?

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Newsboy
Newsboy
1 month ago

1) Upon completing education, swallow your pride and live at home (if doing so is an option) with family for at least 6 months. Bankroll your new paychecks – about 4-6 months of net income should be saved minimum before getting your own apartment. This gives you breathing room for the unforeseen events that life can present suddenly..

2) Buy an older but reliable “beater car” from either your folks or a private seller after graduation, (but don’t purchase collision coverage on your car insurance if the Kelly Blue Book value is less than 4K-5K). As an under 25 driver, you’ll be paying much higher collision premiums than older drivers, and if you have saved up 4-6 months of net income by living at home, you could likely buy yourself another beater car with saved cash if the car is totaled in an accident, (i.e. assuming that the crash was your fault). Buying a new car with borrowed money after graduation requires a good sized cash deposit, includes paying loan interest for the next 4-6 years and requires a borrower to maintain collision coverage on their insurance. All this money spent is protecting a depreciating asset. Buying new cars when young is a loser’s game – don’t get sucked into it.

3) Fund a Roth IRA – Start at 50 or 100 / month, if you must – but establish the behavior right away and increase the monthly contribution amount with each raise you get at work.

4) Participate in your employer’s 401(k) plan, at least up to whatever amount the employer is willing to match dollar for dollar. This employer match is like getting a 100% return on your investment…all before the money even gets invested into the stock market. Added bonus: you reduce the amount of your income subject to federal income tax every year by your contribution amount.

5) If you are healthy (most generally are, when young), choose an employer health insurance plan with a higher deductible (1400/yr. or higher deductible minimum), then open up a Health Savings Account (HSA) so you can squirrel away even more tax deductible dollars for future healthcare-related medical expenses. Open your HSA with a company that offers an option to invest your contributions in low cost indexed mutual funds (such as Vanguard). Keep all your eligible healthcare expense receipts (scan and stockpile them, ideally saved by calendar year). Leave your HSA funds invested in the marketplace for a long time. If you can afford it, pay for any prescriptions, doctors office co-pays, deductibles etc. out of your cash reserve fund – not from the invested HSA account money. There is (currently) no established maximum timeline in our tax code for how long you are permitted to wait before requesting HSA reimbursements for eligible health care expenses. You’ll want to get the full benefit of tax deferred growth over a long period of time on the invested HSA money before you start withdrawals, perhaps even waiting until after you retire to reimburse yourself for medical expenses you paid for years earlier with cash.

Last edited 1 month ago by Newsboy
Tooney
Tooney
3 months ago

Rule 1. Spend less than you earn.
Rule 2. Pay off your credit card balance in full every month. If you don’t pay off your full credit card balance every month, you violate Rule 1.
Rule 3. Open bank savings account and add to it every month until you have $5000 in cash savings. You face life differently when you have at least $5000 in your savings account.

Ginger Williams
Ginger Williams
4 months ago

Use an automatic payroll deduction or transfer from checking account to start an emergency fund and retirement investments. Ideally, you’d save 3-6 months living expenses for an emergency fund, but it’s okay to start by saving $20 a week. Investing 15% (or more) of every paycheck for retirement is ideal, but if you can’t manage that much, start with 5% and increase a percent a year.

Pay off your credit card weekly the first year, before you run up more debt than you can afford to pay in full when your bill is due. Learn to cook a few simple meals that reheat well, then take your lunch to work at least four days a week; a hearty soup with beans or lentils is nutritious and easy.

Wait until you have a month’s expenses in your emergency fund before you acquire a dog. Try volunteering at the animal shelter or joining a dog-walking or dog-sitting service. You’ll save on food, pet rent, and vet fees, while you’re establishing a financial safety net.

Chazooo
Chazooo
9 months ago

If married do not get divorced, THE worst financial move, unless your only alternative is jumping off a skyscraper.

Roboticus Aquarius
Roboticus Aquarius
11 months ago

I think this is my top 10 12:

  • Invest early (Insurance of any kind is not an investment.)
  • Invest often (see: Automate).
  • Utilize Roths if your annual income yields <10% marginal tax rate.
  • Keep your portfolio simple and diversified, with > 50% in Stocks. Use Index funds with low expense ratios.
  • Automate your savings (and expenses if reasonable).
  • Try to save at least 15% of every dollar earned.
  • Keep car costs low over the long run. (Think base car models.)
  • Rent for your housing needs if you will be moving often.
  • When you buy a house, buy the smallest house you could live in forever.
  • Don’t buy life insurance until someone else depends on your salary.
  • Your biggest asset is your own earning power. Automate your financial life so you can focus on this.
  • Avoid carrying a balance on your credit card.
Last edited 11 months ago by Roboticus Aquarius
Ram Suntha
Ram Suntha
11 months ago
  1. Automate (Your savings BEFORE spending)
  2. Invest your savings (Cash back from credit cards, Costco/Sam’s refunds, actively put away the amount on bills that say “You saved $xxx”, All refunds, since you’ve already spent it anyway
  3. Don’t forget to enjoy the thrill of seeing the savings grow.
Scrooge_McDuck88
Scrooge_McDuck88
11 months ago

Max out your IRA, or 401K, most “stuff” you buy you won’t like or need in a few years, invest in yourself, take your health seriously.

Last edited 11 months ago by Scrooge_McDuck88
Jeff
Jeff
7 months ago

Yes indeed

Rick Connor
Rick Connor
1 year ago

One of my favorite pieces of advice is to save first, and save automatically. Automate as much as possible, so savings and expenses, are taken care. You may have a meager take home paycheck, but you will learn to live on it, and feel really good watching your savings grow.

medhat
medhat
11 months ago
Reply to  Rick Connor

Second your suggestion for automation. When you don’t have to think of it regularly the savings can be essentially painless, and hopefully when one does look, for example with an annual “tune up”, they find that this pot of money has grown.

Ben Rodriguez
Ben Rodriguez
1 year ago

Max out your Roth IRA and invest as much as you can in your Roth 401k.

Bob Wilmes
Bob Wilmes
1 year ago

Read the book “The Intelligent Investor” by Benjamin Graham – twice!

When looking for proven voices of reason on how to think about investing it is the “Bedrock” of value investing and explains about what risks you should consider and how to think about the market.

Andrew F.
Andrew F.
1 year ago

Do not get a single credit card till you’re certain you can and will pay the full statement balance every month. Running a balance on credit cards, with their exorbitant interest rates, can quickly spell financial ruin as you dig yourself deeper and deeper into the hole.

And when you do get a card, get one with the best rewards. There is great satisfaction in having the credit card bandits pay you every month!

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