Getting started as a saver and investor can be a tricky
balancing act. You have bills to pay, student loans to settle, and a career to
jump start. You have to create a cash cushion for emergencies at the same time
that you are being urged to salt away money for a far-off retirement date.
Here’s some smart advice on how set your priorities.
Adapted from “101 Ways
to Build Wealth,” by Daniel Bortz, Kara Brandeisky, Paul J. Lim, and Taylor
Tepper, which originally appeared in the May 2015 issue of MONEY magazine.
1. Tuck away a month of
expenses.
Even if this means paying off debt more slowly. The money
can cover surprises like car repairs. Once you’ve hit that point, focus on the
next goal: six months of expenses, to cover you should you lose a job.
2. Juggle emergency
saving and a provident funds by playing it safe.
Until you have six months’ liquid savings (see No. 1
above), investing isn’t a top priority. But you should put enough into a
provident funds i.e. EPF and PPF to get retire peacefully. To partly reconcile
the two goals, hold some less risky fare like bonds. With taxes and penalties,
cashing out a 401(k) and provident funds is a last resort. But if you’re forced
to do it, it’s better to have some safe money.
3. Start first, be an
expert later.
Getting going on a 401(k) and provident funds can feel like
jumping into the deep end. How much in stock funds? What about bonds? But early
on, saving at all matters more than picking the best mix. Say you put away 6%
of your pay, with a 3% match, starting at 25. For 10 years you earn a lousy 2%,
and then adjust your portfolio so that you earn 6% for the next 30 years. That
wobbly first decade will still have added 47% to your total wealth by age 65.
4. Begin your career in
a wealth-building city.
Zillow.com says these metros offer job growth above the
median 1.3% and homes for less than the typical 2.9 times income:
Dallas: Its many affordable ‘burbs include MONEY’s No. 1
Best Place to Live in 2014, McKinney. Job Growth: 3.3% Housing Cost: 2.5 x
income
Atlanta: Home to HQs of Fortune 500 companies including
Coca-Cola and the United Parcel Service. Job Growth: 2.4% Housing Cost: 2.7 x
income
Indianapolis: Metro boasts another Best Place: walkable,
arts-rich Carmel. Job Growth: 2% Housing Cost: 2.4 x income
5. Go ahead, have a
latte.
Reducing small expenses can’t hurt, but housing is where
you can save real money when you’re young. Rent on a two-bedroom, with a
roommate, can be 44% less than for a one-bedroom alone, according to Apartment
List data.
6. Spend money to
invest in yourself too.
Economists at the Federal Reserve Bank of New York have
found that most Americans get their biggest raises during their first decade in
the workforce. So lay the groundwork for wage growth early. Don’t be afraid to
shell out some money for a business communication class, technology training,
or an additional job certification. A $500 class that leads to a promotion and
raise could pay off in compounding returns throughout your career, as future
raises build on top of your higher base wage. It may literally be the single
greatest investment you can make.
http://time.com/money/3817434/saving-tips-advice-millennials/
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