Life would be sweet if we could turn back the clock. If we could do it all over again, we could save more aggressively to let compound interest work its magic, save ourselves from making all those investing mistakes and could probably have managed our career better as well.
But not all is lost. We can still help others, especially our children, understand what they could do early in their lives to make a big difference later on. Here are a few suggestions for young graduates to help with building a nest egg:
Deal with debt immediately. It's becoming increasingly likely that graduates had to finance their education with student loans. Yet, not many of them really understand the implications of all the interest they will be paying their lender. May recent graduates end up waiting until years later to make changes to reduce their debt, perhaps losing thousands of dollars to extra interest payments.
New graduates should look for ways to reduce the interest rate on their debt. Consider consolidating your student loans if it makes sense, and delay some purchases to pay off high interest rate loans first. There are many tricks to reduce debt, and small adjustments can help you to pay off your student loans faster.
Make plans to buy a house. Renting makes sense in certain situations, but it's much easier to save when there's a goal involved. No matter what your future plans are, having a goal to save for a house is a great way to build up your net worth. Once some money is saved up, graduates will be more likely to develop an interest in managing their stash. Acquiring some financial knowledge will be very beneficial because prudent investing is key to a comfortable retirement.
Lose a bunch of money in the stock market early in life. If the temptation to constantly trade is likely to cause you problems, it's best to learn that lesson through an early loss. I recommend passive investing in low-cost index funds for just about everybody, but I won't hesitate to tell young graduates to actively trade in the market if they will be tempted later on to give it a go anyway. If someone has to do it, it's best to try beating the market when they are starting out, when the stakes are low. It's costly to underperform the market, but it's even costlier to do so close to retirement when your nest egg is much bigger. Plus, those who understand the system can better appreciate why passive investing is the better way to go, which will help your ability to stay the course when markets are turbulent and everybody is screaming contradicting advice.
Eat out with co-workers. I'm pretty frugal, but I believe it's a mistake for young workers to pack lunches and eat by themselves every day. The ability to earn a salary is the number one financial asset anyone with a long career possesses, so it's far more effective to maximize that potential. Eating out with co-workers provides a relatively relaxed environment for a fresh graduate to get to know other people working at the company. And as relationships develop, career-expanding opportunities will open up. Even if there are no direct benefits, having a good relationship with co-workers can ease work tensions and smooth interactions so that everyone becomes more productive.
Spend conscious time choosing a life partner. This might sound surprising, but not everybody truly takes the necessary time to determine whether marrying the person they are with is the right decision. Being married to someone is a big commitment, and it requires appropriate scrutiny. The financial aspects alone can be quite complex. Will both partners be able to communicate and solve financial issues together as they arise? Do their current finances and spending habits match? Will they be able to work together to accumulate wealth? Do they even have the same financial goals? No one wants to be a few years into their marriage with a baby on the way and find out that their partner is deep in debt just as they are trying to build a new life together.
Young people have a unique opportunity to begin building wealth for a successful financial future. Help the young graduates around you to take advantage of that privilege.
David Ning runs MoneyNing, a personal finance site that shares money moves you can make to significantly increase your chances of having a comfortable retirement. He likes to share simple changes that anyone can make, such as picking the best online savings account and figuring out whether a 0 percent balance transfer credit card makes sense.