|
 That's the time when your salary is still probably low, but you have
the longest list of expenses: career clothes, cell phone bills, your
first home furnishings, cars, weddings, rent - need I go on? You
probably don't have enough money to pay for all of that at once,
unless your parents have set you up very well or you are a junior
investment banker.
The rest of us have to make choices with our limited "discretionary"
income. Here is a rough priorities list for newbies who have
shopping lists that are bigger than their bank accounts.
- First, feed the 401(k) to the match, not the max. If your employer
matches your contributions, make sure that your paycheck withdrawals
are high enough to capture the entire company match. That is free
money. If you have enough money to contribute more to your 401(k),
that is a good thing to do, but only if you're able to cover other
key expenses.
- Invest in items that will improve your lifetime earning power: A
good interview suit. An advanced degree. The right electronic
devices and services for the serious job hunt.
- Pay off credit card balances. Chasing those "balance due" notices
every month will kill just about any other financial goal you have.
If you're carrying significant credit card balances, abandon all
other extra savings and spending until you've paid them off, in
chunks as large as possible.
- Put money into a Roth Individual Retirement Account. The younger
you are and the lower your tax bracket, the better this works out
for you. Money goes in on an after-tax basis and comes out tax-free
in retirement. You can also withdraw your own contributions tax-free
once the account has been in existence for five years. You can pull
an additional $10,000 out, tax-free, to buy a home. It's nice to
have a Roth, and the younger you start it the better.
- Save for a home down payment. Homeownership is still a smart way
to build equity over a lifetime. New guidelines will once again make
mortgages available to people who make downpayments as low as 3
percent. Even though interest rates are still at unrewarding lows,
it's good to amass these earmarked funds in a savings or money
market account.
[to top of second column] |
- Pay down high-interest student loans. If you had private loans
with interest rates over 8 percent, find out whether you can
refinance them at a lower rate. If not, consider paying extra
principal to burn that costly debt more quickly. Don't race to pay
off lower-interest student loans; the interest on them may be tax
deductible, and there are better places to put extra cash.
- Buy experiences, not things. Still have some money left? Fly
across the country to attend your college roommate's wedding. Take
road trips with friends. Spend money to join a sports team, theater
group or fantasy football league. Focus your finances on making
memories, not acquiring things - academic research holds that you
get more happiness for the dollar by doing that, and you'll probably
be moving soon anyway.
- Buy a couch. For now, make this the bottom of your list. Sure,
everyone needs a place to sit, but there's nothing wrong with living
like a student just a little bit longer. If you defer expensive
things for a few years while you put money towards all the higher
priorities on this list, you'll be sitting pretty in the future.
(Linda Stern is a Reuters columnist. The opinions expressed are her
own. The Stern Advice column appears monthly, and at additional
times as warranted. The Stern Advice column appears monthly, and at
additional times as warranted.)
(Linda Stern can be reached at linda.stern@thomsonreuters.com; She
tweets at http://www.twitter.com/lindastern .; Read more of her work
at http://blogs.reuters.com/linda-stern; Editing by Paul Simao)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
