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Seven things young investors should do before 2009
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One of the biggest mistakes entry-level professionals make is not appropriately handling their finances after leaving the college universe. They suddenly have an influx of money – and the need to spend it.
In a recent interview with Ilkay Can, a director at Charles Schwab, she recommended seven things young investors should do before 2009.
1. Set yourself up to make easy money. If it's your first job, try and contribute to your company's 401(k), at least up to the company match. Don't give up the free – yes, free – dollars your company gives you. Only 10 percent of those between the ages of 22 and 30-years-old are contributing the maximum allowed to their annual 401(k). In your twenties, you should be saving 10 to 15 percent of your salary each year towards retirement – start early!
2. Change your bank account so under no circumstances are you paying ATM fees. You really don't need to pay $3 for that ATM that's near campus or your coffee joint. There are many banks nowadays that refund ATM fees – no matter where you use the ATM. Four ATM visits a month equals $144 a year that you could have put towards something else (i.e., books, shoes, savings account).
3. Check your checking account – are you earning interest? You don't need to be a stock picker to make money in your bank account. Similar to the ATM fees, a lot of banks offer high yield checking accounts. You just need to know who they are. Check www.bankrate.com, and ask your friends. Once you move the money over, it's an easy way to earn an extra few dollars every month.
4. Make saving and investing automatic. Every month, set aside a certain dollar amount to put into an account you don't touch (except in emergencies). Start with building emergency savings, but remember that it doesn't take that much to get started investing either (minimums are as a little as $1,000). Your emergency savings should be equal to three months of your nondiscretionary living expenses, such as rent, food and car payments.
5. Analyze your debt. Of people 25 to 40-years-old, 45 percent say they have too much debt to even think about saving and investing. Take a look at the debt levels you have. Are you paying down your high interest debt (i.e. credit cards)? Paying the minimum every month may work for now, but you'll have a rapidly growing base you'll never pay down. Are you paying enough every month? There are many credit card debt calculators online that can help you understand if you're making a dent.
6. Set yourself up to monitor your spending and create a budget. In order to see if you're saving, you need to track what you're spending. Use downloadable online products like Quicken Online (free!) to manage your expenses. Or, just create an Excel spreadsheet of your spending. You'll be amazed how much you spend in certain areas. Once you figure out what you're spending, create a budget that lets you maximize your spending. Just doing this exercise will open your eyes to where your cash goes.
7. Get help! Many investment firms offer basic financial planning advice once you open an account. All it takes is a phone call. Of people 25 to 40-years-old, 66 percent say they worry about their finances on a daily basis. You can put that worry to bed by picking up the phone and seeing if your company has a financial consultant. If not, look for other companies that do. Every new client to Schwab can engage in a complimentary consultation about their financial goals – from building a nest egg to retiring.
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