The 5 Mistakes New College Graduates Make
4. Retirement? I’m only 23! I’ve got plenty of time!
Of all the financial mistakes that a person can make, not starting their retirement savings early is the one with the worst long-term consequences because you’ll never be able to replace the money you didn’t contribute.
These days most employers offer a retirement plan of some sort and many offer some sort of company match. This means they’re going to give you FREE money. Who doesn’t like free money? Since money is probably going to be tight, odds are good you won’t be able to max out your retirement plan ($15,500 in 2007) but you should at least try to contribute something, ideally enough to get the full company match. Eventually you want to be contributing at least 10% of your pre-tax income to retirement accounts. Since you’ll also have tons of new expenses and loan payments it can be hard to figure out where your money should really be going. This is the general plan you should follow:
- Pay your required bills. This includes rent, utilities, food (not eating out every day), minimum payments on credit cards, student loans, etc. This does NOT include going out partying, buying furniture, going on vacation, etc.
- Contribute to your company retirement plan enough to get the full company match. If your company doesn’t have a match, then continue to step 3.
- Pay off all consumer debt. This includes credit cards, car loans and any high-rate student loans.
- Contribute to a Roth IRA. A Roth is one of the greatest savings tools the government has given us so take advantage of it. What's so great about a Roth IRA?
- Either start maxing out your employer plan or start saving for another goal, like buying a house.
Following this plan will insure that you are taking full advantage of the retirement options out and help you make good decisions about your money.
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