Time is a very important element in saving for retirement. Ideally, college graduates are in a very good position to retire comfortably with a lofty sum of pension, savings, and other investments. College graduates have something that most people older than them don’t have: the luxury of time to build their financial foundation and prepare for retirement.
Statistics show that college graduates never think of retirement or savings until they have overwhelming financial obligations such as starting a family or health issues. College graduates are prone to spending the money that they earn in their jobs and enjoying their youth. For them, they are at the prime of their lives after finally finishing school.
There is nothing wrong in enjoying life especially in enjoying your hard earned income. Unfortunately, most college graduates are too drawn and focused on enjoying and overlook the fact that they are wasting a golden opportunity of a lifetime. Ignoring the significance of starting early is one of the most common yet dreadful mistakes that a lot of people make. People at their late 40’s, in their 50’s, or even 60’s struggle financially because they haven’t prepared themselves while they are still young or if ever they did, they did it poorly. Many think that they should enjoy life while they are still young or retirement is still a very long way to go.
Here are some tips that you can use as a college graduate in preparing your retirement without jeopardizing enjoyment in your youth prime.
1.) Invest in knowledge. Knowledge is very important and in fact it is the best investment that you can ever have. As a college graduate, search for different things to learn about savings, insurance, health care, investments, and retirement. These things are essential in building your financial foundation and these things are going to give you a very worthy retirement. There are a lot of great sources of information such as books, the internet, joining seminars or presentations, or even enrolling in different courses. Don’t rely on the pension plans given out by the government. There are a lot of other ways to take which could give you a better investment for your retirement.
2.) Allot a fraction of your income. It is ideal to save at least 10% of your income or use it to investments. 10% of your monthly income means that you have successfully saved or invested 120% of your monthly income. This is where the element of time comes in. The younger you start, the greater the potential of growth of your investments. If you are consistent and start to save early, you are guaranteed to retire financially free or better yet, earlier than you expect. For example you earn $1000 a month and save 10% of it every payday for 10 years. After 10 years, assuming that you are still receiving the same amount of pay, you have saved or invested $12,000. The $12,000 is just the amount of capital that you have invested but in reality, it should be more than that because of the power of compounding. So assuming that your investments grow at an average of 10% every year, after the 10th year your investments are equal to $24,149.89. The rate of return increases as the amount of capital you have invested increases and/or if the interest rates increase as well.
3.) Seek career advancement fast. As a college graduate, the most likely source of income that you will have is through jobs. The only way to earn more through jobs is through career advancement. In order to take a higher step in your career, enrich your knowledge about your job and enhance your skills. Aside from technical skills, it is also very important to develop managerial skills. The greater the knowledge and the better skills that you have, the better your chances in climbing the corporate ladder. The higher you are in the ladder, the greater and better the perks and benefits. Companies will pay for your health care, insurance, and pension plans which means that aside from receiving a salary, you get to build your financial foundation in a cheaper way.
4.) Diversify your options. Aside from opting for the corporate world, there are several lucrative options that you can also choose from. You can start a business, do a part time job, do free lance jobs, or work on a sector outside your college degree. Diversifying your options would give you more room to earn more income thus you can find better financial opportunities in the long run. The mortality rate in the corporate world is not quite so high thus you need other ways to earn more income. If you start a business or invest whether full time or during your spare time, you can create a good source of passive income which could support you later on in life. The great thing about diversifying? Once it grows and becomes sustainable enough, you can retire from your job early and enjoy your time.
5.) Build the right and solid financial foundation. Being financially independent has nothing to do with luck. It is a process that takes time to build and materialize. There are certain steps that should be followed for it to be successful. First, you should consider getting health care and insurance plans. These two are essential as they will cover your financial needs once your income generating capacity is temporarily or permanently lost. Next is to eliminated debt if you have or avoid it if you don’t and accumulate as much savings for your emergency fund. The suggested amount for your savings is at least three times more than your annual income or an amount that could support you for three years even without earning any income. And lastly, invest and protect your investments. Investments come in last because investments aren’t meant to be touched in case the need arises. Health care, insurance, and the emergency fund will take care of that. Protecting your investments is very important as it will protect the income generating capacity of your investments. Building the right and solid financial foundation takes time and doesn’t happen overnight.
Retirement is a priority. Avoid committing the same mistakes that most people make by enjoying too much and procrastinating. If you start young, you’ll end up achieving your financial and retirement goals early and you can retire young and enjoy for the rest of your life. Pay the price now and enjoy the great things later.