South San Francisco, CA June 22, 2021 by Ann Lloyd, Student Saving Blog
Transitioning from the teen world to the adult world doesn’t happen overnight. There’s a lot to learn. It can be exciting, and a little overwhelming — when it comes to money as much as anything else.
So, you’ve landed your first job and you’re earning a regular paycheck. Maybe it’s part-time; maybe it’s weekends; maybe it’s your own business mowing lawns around the neighborhood or cleaning houses. Whatever you’re doing, you’ve got money in your pocket now, so the question becomes: What do you do with it?
Your parents may have taught you some strategies about money, but now’s your time to figure the rest of it out for yourself. Keep the following facts in mind as you move forward.
The future is now.
It’s hard to imagine retiring when you’re 20 years old and 65 seems like light-years away, but you’ll be there sooner than you think it’s possible.
There’s nothing wrong with enjoying yourself in the moment. It’s true: You’re only young once. But before you spend that money, put some of it aside for the future, whether it’s for your education or for that great idea that you want to develop once you’re ready.
And no, it’s not too soon to start saving for retirement, as weird as that might seem. In fact, it’s easier to start doing so now, when you’ve got fewer things competing for your dollar (like car payments, mortgages, kids, insurance, repairs, etc.). If you decide to start a family, a whole new set of priorities will come into the picture.
The sooner you start investing, the more interest you’ll earn — and compound interest, at that. That also means you’ll have to set aside less money later, when you may need it to take advantage of a great opportunity. Or deal with an emergency.
Your reputation is worth a lot.
You start building a reputation in school with the grades you earn and the activities you choose (athletics, clubs, school government, yearbook, etc.). You’ll build on that reputation — for better or for worse — as your life goes on.
Gaining experience through internships and jobs, becoming proficient at different skills, and getting recommendations will help you build a strong résumé that you can present to prospective employers.
But those same employers will be looking for reasons not to hire you: an unstable job history, being underqualified, not having strong references, etc. Some companies even look at your credit score, because that can tell them something about how reliable you are.
Think about building credit like building your reputation: It takes a while, but the better it is, the more people will trust you. In this case, lenders will trust you with their money, and they’ll charge you lower interest rates if they believe you’ll pay them back on time.
But, as a young person, you’ll be starting from ground zero. One way to build credit without taking on debt is through a secured credit card. With a deposit of a few hundred dollars, and you get access to a line of credit. Use it like a regular credit card, pay it off every month, and build your credit score (your financial reputation).
Backup plans are essential.
Speaking of emergencies, it’s a good idea to put at least a little bit of money away in an emergency fund. When you’re young, it’s easy to believe you’re invincible, but if you think about it, you’ve probably had some close calls. Maybe your parents had your back, or maybe one of your teachers did.
Once you’re out on your own, though, you’ll realize pretty quickly that you’re not invincible after all, and that you’ll need to provide your own backup. Living in your own apartment, driving your own car, and being responsible for your own income open you up to a variety of potential emergencies.
That’s why it’s a good idea to plan for what you can, and set aside funds for the rest. When you buy your first car, make sure to perform routine maintenance, and stock the trunk with an emergency kit that has everything you need in the event of an emergency. When you move into your own place, invest in a portable generator to ensure you maintain power and stay connected in the event of a weather emergency. While you’re at it, make sure you equip your high-end electronics with screen protectors and waterproof cases.
Remember: It typically costs much less to prepare upfront than to repair later.
Your money can work for you.
As important as it is to work hard for your money, it’s also important to understand how you can make it work for you.
If your employer offers a 401(k) plan for retirement — there’s that “R” word again — with a matching contribution, that’s like free money. Some retirement options include tax deferrals, so you don’t have to pay until you withdraw your money.
But there are other investment opportunities, too, such as mutual funds, bonds, stocks, real estate, or commodities. And don’t forget about investing in yourself: Add to your skillset through online or in-person learning, or invest in your own ideas by becoming an entrepreneur, author, or service provider.
As you look out on the future, the world really can be your oyster, complete with its own pearl. But you’ve got to cultivate it and polish it in order to make it shine. These are just some of the ways you can start to do that.
About Ann Lloyd
My name is Ann Lloyd and I’m a newly enrolled MBA grad student. I’m getting my degree online and working as a marketing intern on the side. In my spare time, I’m hard at work on the Student Savings Guide, my blog about living a budget-conscious life. The guide caters to students and recent grads, but anyone can use these tips to get by.