Finance - grads and recent grads

Early career retirement savings. Become experts on personal finance. Here is what to do.

Every dollar you save at 22 years old is worth 88 dollars to your retirement. Make the time to set a budget with your new income. Good news, The Money Guys have organized the Financial Order of Operations that tells you what to do with your next saved dollar to maximize your retirement.

1. Save up all of your deductibles. Health, property, auto, etc.
2. Make sure you participate in your employers 401k. Do the Roth Component if they offer it, but make sure you capture all of their matching funds. It is 100% immediate return. Keep putting money in until you get the entire match.
3. Pay off high interest debt. Credit cards. Do not carry a balance.
4. Max out a Roth IRA account. $7,000 max. Do this while you are young.
5. Max out your 401k past their matching contribution.

Once you complete #1, move to the next number.

Do not let your debt lock your life down. High interest debt should be avoided as much as possible your entire life.

Waiting to start just 5 years lowers your return from 88 per dollar down to 44. Do not wait. Set yourself up to build early. Your 50 year old self will love your effort.

The Money Guys Podcast really is good to understand the different investment vehicles.

Early on, until your salary and tax rate gets above 28%, take advantage of Roth contributions. Roth is 100% tax free even the growth when you retire. If you could do 7k at 22 in a Roth IRA, it will be worth 7K X 88

Good advice for you younger people. Retirement comes faster than you realize

Just something to think about. I typed that while I was waiting in line at Chick-fil-a.

New grads too often graduate and saddle themselves with new car payments and all the cool shit you couldn't do when you were in school.
Before you do that, make sure you are paying yourself first. Compounding interest is awesome when it works for you. Every dollar you get into debt, compounding interest works just as hard against you.

You need a reliable car. A 26k Camry Sport is good enough, if it allows you to capture your employers entire match and you can max out your Roth IRA $7,000 at age 22-23.

Just some quick numbers. You graduate. 50k salary. Your employer matches 5% in your 401k. So they will give you $2,500 free dollars if you put in $2,500 dollars into your 401k. That doesn't include any profit sharing they put in for you either. So that is Roth 401k at $2500 and traditional match at $2500. Then if you put in $7k to your Roth IRA account, that means you put in $10,500 total in Roth. Do that for the first 5 years out of school. That would be $52,500. When you retire, even if you didn't put a single dime more into any of those accounts, it would be worth $2,300,000.

If you wait 10 years to start age 32, that same $52,500 would only be worth $1,150,000.

Make a small sacrifice now, for huge compounding interest gains later. Build an Army of Dollar bills to fight for you. And they will.

This has been a public service announcement by Lord McBuckethead.

A good book called The Thin Green Line , talks about the difference in rich v. wealthy people.
Wealthy is a mindset and disciplined life.
Rich is more of flashing it to show it.

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Originally Posted by Lord McBuckethead

Every dollar you save at 22 years old is worth 88 dollars to your retirement. Make the time to set a budget with your new income. Good news, The Money Guys have organized the Financial Order of Operations that tells you what to do with your next saved dollar to maximize your retirement.

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You're math is off somewhere here. Even if you use a 10% real return (which is probably not realistic for most people), you only turn one dollar into $88 after 47 years of compounding, so that'd be an age 70 retirement.

If you use the historical average real total return of the stock markets (so dividends reinvested, adjusted for inflation), you get basically a 20x multiplier over 42 years. So that first $7k invested by the time you turn 23 would be something like $140k at 65.

Still good obviously, but makes it even more important to save early on because even with good returns like that, it's still hard to get to a good retirement number.

It is 308k plus dividends over 45 years.

Good stuff. And don't worry about what your neighbors do, or what they have. A lot of their stuff might be financed. I'm 52 and my wife is 49. We could retire comfortably tomorrow if we wanted. I try to teach my kids this stuff, and they are slowly learning. Some things they simply have to see for themselves.

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Originally Posted by somebodyshotmypaw

Good stuff. And don't worry about what your neighbors do, or what they have. A lot of their stuff might be financed. I'm 52 and my wife is 49. We could retire comfortably tomorrow if we wanted. I try to teach my kids this stuff, and they are slowly learning. Some things they simply have to see for themselves.

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My daughter is in elementary school still. She understands what a return on investment is and why TIME in the Market is the most important thing, not timing the market. She participates in her 529 plan and likes to see what it does day in and out.

Lauren Black at Phillips Financial is a really good resource for those just starting out. She is in Starkville and really tries to make sure you are set up correctly from day you hire her until you are well on your way. If any of the young people out there think they have a basic understanding, Lauren will give you some new things to think about and get your on course and automate it so you don't have to think about it every pay check.

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Originally Posted by Lord McBuckethead

My daughter is in elementary school still. She understands what a return on investment is and why TIME in the Market is the most important thing, not timing the market. She participates in her 529 plan and likes to see what it does day in and out.

Lauren Black at Phillips Financial is a really good resource for those just starting out. She is in Starkville and really tries to make sure you are set up correctly from day you hire her until you are well on your way. If any of the young people out there think they have a basic understanding, Lauren will give you some new things to think about and get your on course and automate it so you don't have to think about it every pay check.

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One example that my daughter had to learn on her own, even though I've been telling her. Sometimes they have to see it. My daughter has a very nice Nissan Altima that I bought used. Her friend got a brand new Mercedes SUV. Obviously anyone would be a little jealous. Recently my daughter found out that the Mercedes was a lease. She also found out that the girl is attending Ole Miss utilizing student loans. So not everything was as it seemed.

A 529 plan was one of the best things I ever did. Now that they are in college, it's been so nice.

Telling someone something is hard to grasp. Watching the 529 go up through time and seeing how we handle money is key for her to understand.

When she gets her first job, we are going to sit down and discuss how to set her up for her Roth IRA and I am going to sweeten the deal by matching her contributions dollar for dollar.

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Originally Posted by Lord McBuckethead

Telling someone something is hard to grasp. Watching the 529 go up through time and seeing how we handle money is key for her to understand.

When she gets her first job, we are going to sit down and discuss how to set her up for her Roth IRA and I am going to sweeten the deal by matching her contributions dollar for dollar.

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I worked for a guy that used to say " Wisdom can't be told " Lot of truth there

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Originally Posted by Lord McBuckethead

Telling someone something is hard to grasp. Watching the 529 go up through time and seeing how we handle money is key for her to understand.

When she gets her first job, we are going to sit down and discuss how to set her up for her Roth IRA and I am going to sweeten the deal by matching her contributions dollar for dollar.

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You should get her to max her IRA herself then you match half of that in a brokerage instead

I would say make your step 3 step 1 first. Also Roth 401k might not be the best option for all new grads. Some of our engineer grads prob start in the 22% bracket and might should go traditional. I would also move HSA to the very top of your list if HDHP is an option. it is the only triple tax advantaged account out there

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Originally Posted by somebodyshotmypaw

One example that my daughter had to learn on her own, even though I've been telling her. Sometimes they have to see it. My daughter has a very nice Nissan Altima that I bought used. Her friend got a brand new Mercedes SUV. Obviously anyone would be a little jealous. Recently my daughter found out that the Mercedes was a lease. She also found out that the girl is attending Ole Miss utilizing student loans. So not everything was as it seemed.

A 529 plan was one of the best things I ever did. Now that they are in college, it's been so nice.

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You really can't tell much about people by their lifestyle. I've got older relatives on both sides of my family that always had nicer cars than my immediate family, took nicer vacations, ate out more, and just generally had much more consumption that are more or less broke at this point and too old to do anything about it. They probably did make a good 15-20% more in earned income over most of their careers, but spent that and then some and now are asking the family members that didn't take all the vacations and lease the nice cars to help keep them out of a medicaid nursing home.