Congratulations! Youre graduating from college. Now lets talk about your retirement.
4 out of 5 Households have less than 1x their annual salary saved.For 55-64 year olds, 3 out of 8 people have more than 1x their annual salary saved.And only 1 out of 25 have more than 4x saved.On average theyll need 22x their annual salary saved.
Your greatest asset is time!
Start saving as soon and as much as possible!
401kDefined contribution planYour retirement is up to you and how much you save.Enroll!Increase the amount you save every year.Get to your employers matching level as quick as possible. Its free money!Save More Tomorrow from Richard Thalers book Nudge
IRA vs Roth IRAIRA (aka Traditional IRA)Pre-tax contributions. Used to lower current tax bill.No capital gains tax.Money must be taken out each year starting at 70.5 years old.This is taxed at current income bracket at time of withdrawalRoth IRAAfter tax contribution. Does not lower current taxable income.No capital gains tax.No mandatory withdrawals.Money withdrawn is not taxedBetter option if you want to buy a house
Saving Yourself from Yourself
The average investor has underperformed every asset class for the last 20 years.
Performance chasingBuy what is going upSell what is going downRight before reversion to the mean
It looks something like this...
Behavioral Finance Books to Change This
Your Money and Your Brain by Jason ZweigEasy to read and it focuses on the physical structures in our brains and how they lead us to do the wrong thing when it comes to money.Thinking, Fast and Slow by Daniel Kahneman.The bible of behavioral finance. It gets into the battle between our fast, reactive system 1 thinking and our slow, rational system 2 thinking. The big thing affecting us is Loss Aversion.
Create an Investment PlanTechnology and competition has made the entrance cost so low everyone has access to a well diversified portfolio now.Robo-AdvisorsGen X, Y, & Millennial focused financial advisors with affordable fee schedules.Im always here to help.
Stick to the Plan!
Make saving regular and automatic. Pay yourself first.Rebalance on a consistent schedule.Ignore market news. Itll trigger emotional decision making.Review the plan every few years and at milestones.If you cant, then hire someone.
BudgetMintLevel AppTrack your spending. You cant improve what you dont measure.
Saving and investing creates positive compounding effect.Wealth building.Credit card debt is negative compounding.Wealth destroying.Pay off student loans as quick as possible.Side hustles to make extra money.www.budgetsaresexy.com for 60+ list of side hustles
Im always here to helpIll help you with anything financial that pops up over your life.
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