

What are your early financial tips? Should I start a 401K - danutenshu

An ADP Retirement service broker dealer connected to an office I&#x27;m interning at came to talk to the employees that have been here for a while about a simple IRA which had been set up for them.
Are there any financial tips you can give, both short-term and long-term, for a college student&#x2F;graduate?
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slykat
I have surpassed a lot of my peers who have made significantly more than me in
net worth & possibly net happiness. Here's how:

1) Maximize your employee 401K benefits - This has been stated before but 401k
matching is tax sheltered and more importantly, is free money from your
employeer

2) Treat your credit card like a debit card - Never carry a balance, never use
it to buy things you don't have savings to buy.

3) Carry cash assets in high yield savings accounts - While interest rates
currently, suck, there is no reason to let your money sit in a non-interest
bearing account.

4) Avoid paying tax on income as much as possible - There are a lot of
financial instruments (401K, IRA) that allow you to defer tax. If you are in a
state with significant tax rates (i.e. California) deferring tax can hugely
valuable.

5) Learn how to financially model - This is probably my most valuable tip. You
should understand the implications of every significant expenditure you make.
Since I love modeling, I go a bit overboard on this but it really makes your
decisions a lot more clearer. Some typical decisions that you should be able
to model with a DCF: competing job offers, buying vs. renting, going to grad
school, etc.

6) Financially model & think heavily before going to graduate school. As you
hit the mid to late 20s, you may feel a lot of pressure to go grad school due
to changing careers, getting pedigree, peer pressure, etc. Higher education in
the US is extremely expensive; make sure you model the costs (including the
lost opportunity cost of salary) before cutting a check. I've had a lot of
colleagues waste money on MBAs that were largely un-necessary. There are also
a lot of ways to switch careers without another degree (I did it myself 3
times without any new degree).

7) If you are open to working outside of the US, consider working for a few
years in countries like Dubai where you can legally reduce your tax payments.
A reduction in your taxes can easily double or triple your take home salary
(even if your salary stays the same or even reduces). This benefit erodes as
your salary increases so consider this in early stages of your career (it also
becomes harder to move internationally as you grow older).

8)Negotiate every salary offer, ideally with competing offers, even if the
offer is your dream job. Most people stop looking for jobs when they are close
to the offer. What do I do? I accelerate my interview process and reach out to
competitors to see if I can get competing offers before I have to decide on
the offer. No good company will fault you for negotiating your offer and
negotiation almost always improves your offer significantly.

9) When comparing & contrasting offers in different cities consider your
"savings income": i.e. pay - taxes - living expenses. Some people instead rely
on cost of living which results in incorrect decisions (a 50% increase in cost
of living doesn't mean you need 50% higher in salary to net the same money).

10) Choose credit cards that give you the highest cashback (usually). This
isn't always the right choice (i.e. if you fly a lot mile cards may be better)
but in most cases 2% cashback card will beat out any card and cash is
conveniently liquid (unlike miles). Also don't open more than a few cards as
that will just open you to risk, abuse, and a lower credit score. Do NOT open
a credit card just to get a free t-shirt or $40 off a purchase. My rule of
thumb is that a credit card should return at least $300 annually (not just the
first year).

11) Try to allocate expenditure on your "happiness ROI". I am extremely frugal
on things that do not improve my happiness for the long term and relatively
extravagant on things that do.

Things worth splurging money on [for me]: Experiences & travel, reducing
commute time, fitness activities, books, a comfortable bed Things probably not
worth splurging on [for me]: Fancy & shiny new car, a bigger apartment/house,
expensive new furniture, expensive non-work clothes

As you get older you will feel a lot of peer pressure to buy the things your
peers are buying - don't cave in and focus your discretionary spend on things
that make you happy.

12) Keep your cost of living relatively stable when your income spikes. You
are likely to experience a income spike sometime in your career. Resist the
urge to scale up your spending immediately - unless you were unhappy before
(and purchases make you happy), what's the point? You will thank yourself when
you experience the other common salary spike across most careers: lay-offs.

13) Build 6 months of runaway as soon as possible. Ideally this should happen
within few years of graduating (assuming no loans). Extend the runaway as your
career progresses and esp. if you want to be become an entrepreneur.

14) Depreciation is your friend - consider buying used when it makes sense.
Many items lose significant value within a few months even though they have
the relatively same value to you. Purchasing used makes a lot of sense in many
purchase decisions (books, cars, furniture) but also makes no sense in other
decisions (mattresses, bike helmets, swimsuits, car seats).

15) Advanced tip - Make sure you read the _Intelligent Investor_. Chances are
you've been brainwashed with way too much EMH theory in undergrad which has
convinced you that you can't pick undervalued stocks because the market prices
everything perfectly. This book will teach you the flip side of the coin - the
side that guys like Buffet made billions with. Even if you don't want to
invest in stocks or mutual funds, it will give you the right philosophy for
financial decisions.

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caw
My first internship offered a 401k with company match. The trick for that is
to put in exactly as much to get the company "free" money. If they match 100%
up to the first 3% of your salary, you just got a 3% raise so long as you
agree to put your money in a 401k. If you ever leave, then you'll just roll
the account over. Not all of that money could be yours (read the vesting
rules), but a good chunk of it probably will be. At worst, did you miss 3% of
your salary? You'll get it back in 40 years.

After that point, you're going to get wildly different ideas of how to save
your money. Most commonly people will suggest high risk, high return assets
(stocks or stock funds, as opposed to bonds or bond-based mutual funds), since
even if you lose everything, then you still have the rest of your life ahead
of you. Basically what it comes down to is how to compound your earnings
combined with the tax burden. Each of these have different rules as to maximum
contributions per year, when you can take your money out, etc.

* Traditional 401k or IRA - Pre tax money, lowers your income taxes now in favor of paying tax later (you suspect your tax rate will decrease -- probably not true as a student)

* Roth 401k or IRA - Post tax money. Pay tax now, and none later (you suspect your taxes will go up)

* Brokerage accounts - Pay taxes on gains as income or capital gains (most tax, most liquidity).

Within each of these you can choose how to invest your money for your
risk/reward tolerance. Bonds, Funds, and Stocks are how most people invest.
Some choose to do real estate. Some choose to do more riskier things like
derivatives. Wikipedia has a full list
([http://en.wikipedia.org/wiki/Financial_market](http://en.wikipedia.org/wiki/Financial_market)).

So long as you diversify, you should get an overall good return and won't be
subject to volatility in one particular investment. However, due to minimum
investments for the first few years it's probably best to diversify over time,
rather than right from the beginning.

I graduated 2 years ago, so I've had to brush up on all of this stuff, along
with supplemental benefits like AD&D, life insurance, etc. If you have any
questions my email is in my profile.

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wikwocket
+1 for good advice about matching, vesting, and diversifying.

Here is a postcard cheat-sheet of "what to do with your money," per the OP's
request:

1) Pay down credit cards and never carry a balance.

2) Keep 3-6 months' worth of income in a savings account for emergencies.

3) Invest in your 401k up to company match. Put everything in a TSM or SP500
index fund and forget about it.

4) Pay down mortgage, car payments, student loans.

5) If you still have any money, talk to an accountant for investment advice.
401k, IRA, etc are good options.

6) Invest for the future, and live a full life in the present!

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Casseres
First, one of my coworkers who will be retiring within the next 10 years
recently attended a retirement seminar provided by our company. He mentioned
to me that the seminar speaker said that it should be young people going to
these, because by the time you are 50, it's too late to make the changes which
will have the biggest financial impacts on your retirement.

I don't know what the future will hold, so I am maxing out my TSP (Thrift
Savings Plan for US federal employees, like a 401k). I even front-load it,
paying as much as I can in the first couple of months of the year, and leaving
it at 5% for the rest of the year to get all the matching funds I can. By
front-loading, the interest has more principle to compound for the rest of the
year. I've also found several TSP websites where people get together to discus
ways on maxing their retirement savings. I imagine there might be similar
websites for people with 401k plans if you look.

Because I'm at sea and have almost no expenses, I'm investing almost all of my
paychecks which will help me achieve financial independence within a matter of
years. I have a brokerage account in which I'm buying stocks. When you are
younger, you can afford to take more risk with your investments. As you get
older, you should be taking less risk, because essentially you can't afford to
start all over.

I also recently discovered Early Retirement Extreme (0). You don't have to be
as "extreme" as the author, but there is some sound advice in there. I think
it helps that I'm an INTJ like the author and most of the readers of the blog.
You have to embrace the idea that saving is better for the individual than
perpetuating debt.

(0) [http://earlyretirementextreme.com](http://earlyretirementextreme.com)

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erichurkman
If you ever work at a company with a 401k, make sure you read the matching
rules and vesting rules for company contributed funds! If you are not earning
100% of company matched money, you're throwing away money that the company
already allocated as part of your total compensation. Maybe that's OK if you
want to take the cash home instead, but at least be aware of your options.

Also make sure you look at fund fees; some employers will let you continue
operating your 401k after you terminate employment, but you may pay higher
fees. Some funds may look great but may have very high fees.

If your company makes automatic contributions (not matching; straight-up
contributions) make sure the cash is actually invested in something. Company
contributions may have wildly differing vesting schedules, too, be aware.

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coryl
I enjoyed reading this book by Ramit Sethi: [http://www.amazon.com/Will-Teach-
You-Be-Rich/dp/0761147489/r...](http://www.amazon.com/Will-Teach-You-Be-
Rich/dp/0761147489/ref=sr_1_1?s=books&ie=UTF8&qid=1378261980&sr=1-1)

Its full of very basic fundamental advice. It doesn't go into depth into
securities options, but emphasizes practical "set and forget" tactics.

TLDR; invest early, invest often, keep a good credit score, stock market is
great for returns over the long run (index funds/mutual funds), keep a savings
account, automate your investing. Also, did you know your credit card offers
perks like extended warranties on purchases (at no cost)?

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thejteam
First is to figure out what your goals are long term. Then figure out how to
work towards those goals. If a 401k fits those goals then start a 401k. Most
of the time, though not always, you need to be full time before you can
contribute to a company 401k plan.

Best advice I can give, though, is 1) read a lot and 2) never take anything
you read at face value.

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a3n
Get a few different perspectives. Here's one:
[http://www.mrmoneymustache.com/](http://www.mrmoneymustache.com/)

~~~
danutenshu
Do you have any other business related community sites?

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AznHisoka
Financial tip for a college grad..

Do either option 1 or 2: Option 1: Spend as much as you want during your
college years, go party, and go get laid w/o caring about your grades or
getting a job. You still are gonna have to work for the next 40 years anyway.

Option 2: Do a startup while you're in school, ignore everything else(girls,
grades, getting a job, etc) so you can strike it rich. Even if you fail,
you're still gonna have to work for the next 40 years anyway.

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giestrich
Bogleheads.org is an incredible resource. It's like "HN for investments",
IMHO.

