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Saving During Your College Years: Why It’s Never Too Early To Plan Ahead For Retirement
You can read many articles about saving early for retirement during your college years. Many of those articles will tell you the same thing. They will tell you about all your different investment options. Some of the same will be covered here, but the information you read her is going to be a lot more honest so buckle up!
Income Vs. Expenses
Many people who begin saving for retirement in college mess it up at some point down the road. There is one simple reason for this. As their income grows, they want more. They get a raise at work and now they want to upgrade their home or car. Even if it’s a car, the average annual raise is 3%, which doesn’t allow for such an expense.
Spending has a lot to do with psychology. When someone gets a raise, their perception is often that they will keep climbing. They don’t realize that it’s just as easy to fall. If the company that gave the raise hits hard times, cuts are coming. Then what do they do with that upgraded home and/or car? At that point, this person needs to dip into their retirement savings or investments to survive because their expenses exceed their income.
If you want to really know how to save for retirement, it’s not what you will usually read. It’s making sure you keep your spending the same when you begin earning more. By doing so, not only do you have more money to save and/or invest, you also prevent having to remove money from your savings and/or investments in the event of an emergency.
A lot of people are concerned with status and how they appear to others, but that’s insecurity. If you have extra money, don’t spend it on an upgraded home or car. Use it for travel and other experiences. It’s a fraction of the cost and it’s for you opposed to trying to impress others. Life is about experiences, not possessions. Once you realize that, you will be much happier.
The earlier you start saving, the more you earn because of compound interest. In other words, if you put $1,000 into a savings account and earn 2%, you will earn $20. That’s not much, but that 2% is going to grow every year because your total will continue to increase.
This might sound like a conservative investment to you, but conservative can be very good. If you invest in stocks and ETFs (Exchange Traded Funds), you are going to be putting yourself at much higher risk. You are susceptible to stock market crashes, which can be caused by many different things. Due to Federal Reserve manipulation, the stock market has been in a boom/bust cycle since the Tech Bubble in 2000. The American economy always finds a way to win over the long haul due to ingenuity and natural resources, but it’s likely to be a wild ride that isn’t for everyone.
If you want to be the tortoise instead of the hare, then you should stick to safer investments such as savings accounts, money market accounts, CDs (Certificate of Deposit), and investment-grade bonds. All you need to do is go to the bank and tell them this is what you want. You don’t even need to hire an investment advisor.
When you take the conservative route, there are going to be long periods where everyone around you is making a lot of money in higher-risk investments. Stay the course. These will be the same people living in misery when things head south. Don’t advise them. Just remain silent and let them do their thing. You, meanwhile, will slowly but steadily building your net worth with very low risk and no stress.
Keep your spending the same when your income increases. This is a key to wealth building. It’s also a way to avoid having to dip into your retirement savings when a financial storm comes, and it will come. Also strongly consider conservative routes for retirement building. It’s a no-stress approach and highly effective due to methodical long-term gains.
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