Starting your Career
It’s an exciting time starting your first big job! It’s also the perfect time to get your financial life off to a great start. Here’s a list of what we think are the most important Do’s and Don’ts as you earn that first paycheck.
Start Saving today
An essential aspect of your financial life is spending less than you earn. So, “pay yourself first” by saving before spending on everything else that life demands.
For example, saving 10% of your total salary means you’ll become a multimillionaire (two million) by age 69. If you’re able to sock away 20%, you’ll hit that magic number at age 60. Saving 30% of your salary, you’ll be in the multimillions at the young age of 55. Everyone has a balance between enjoying life today and financial freedom in the future. Find yours!
Assumptions: A starting salary of $40,000 at age 23 that grows 3% a year, and you invest 100% in stocks that earn 7% a year.
Max out your Roth IRA contribution
After saving enough in your 401(k) to earn your employer’s match, we think the best place to save for your retirement is in a Roth IRA. Of course, you pay tax on your contributions, but it’s best to do it earlier in your career before your salary grows and you move into a higher tax bracket. Most people can contribute up to $6,500 per year to a Roth account. Make that a priority!
Be a Long-Term Investor
You’re young and have your entire career to save and invest wisely. If you have decades before you need money for retirement, do what you can to be a long-term investor that focuses on being a business owner. That is, owning stocks. We believe that’s the best way to compound wealth over the long haul, and it’s likely your investments for retirement can be in 100% stocks. Ignore the ups and downs of the market and instead focus on saving consistently, year in and year out. You won’t regret it!
Don't allow money to be a stress in your life
Get your relationship with money off to a good start! Some best practices we’ve found:
- Spend less than you earn each month. That will allow you to build up some extra savings (we’d suggest a goal of six months of your spending) to deal with life’s unexpected costs.
- Pay off your credit cards each month. If that’s not working, use a debit card instead and devise a pay-off plan for your credit cards.
Don't buy unnecessary products
Just like you avoid spending on frivolous things, avoid financial products like universal or whole-life policies that combine investing, savings, and life insurance. You’ll often find you’re paying too much and can build those benefits yourself through fixed-term life insurance and investing separately.
Many in the financial industry earn commissions or incentives by selling “suitable” products. Unfortunately, that’s not good enough. Instead, find a financial partner you can trust that acts in your best interest 100% of the time. That’s called being a fiduciary. They can help you develop a financial plan and stay on track!
Jacobson & Schmitt Advisors, LLC (“JSA”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where JSA and its representatives are properly licensed or exempt from licensure. The information provided is for educational and informational purposes only and does not constitute investment advice, and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security.