Establishing Early Habits in Saving and Investing

June 2021

Hi ladies,

This time of year is when we typically celebrate graduations; the academic achievement that launches students into the next phase of life. I have two grandchildren who graduated Kindergarten this year.  They are excited to be starting the adventure of first grade. That same excitement holds true for the high school and college graduates as they launch themselves into “real life.”

As with any momentous life event, we can impart some financial tips on the new graduates to help them develop smart financial habits early on.

For my Kindergartners, it may be guidance against splurging with their lunch account so they don’t break mom and dad’s budget. But, clearly, the discussions about money, budgeting and saving become much more important for the older graduates. For high school graduates heading to college, this will likely be their first foray into independence, and as part of that freedom comes more responsibility. They should receive some guidance about budgeting, credit, and savings. It is a great time to talk to them about budgeting, the benefits and pitfalls of credit, and saving. They may be taking out student loans to pay for college, so they should understand how a loan works. They also will start to receive credit cards aimed at students. Helping them understand how credit cards work, the long-term impact of only making minimum payments, and the value of their credit score are invaluable lessons at this age. A good start with using credit wisely provides a solid foundation later for larger purchases using credit, like car loans, mortgages, lines of credit, or loans for entrepreneurship. These discussions also are valuable for graduates who are choosing trade school or are going straight into the workforce.

For the college graduate or the high school or trade school graduate entering the workforce, providing guidance around employee benefits and retirement planning options is critical in terms of budget management and saving for the future. In addition to offering health coverage and life insurance, many employers provide a match for contributions to their retirement plan. If the company is willing to match up to 5% of salary if you contribute 5%, that’s 5% of salary saved for you without reducing your own income. Starting that in one’s 20’s is HUGE in achieving retirement goals. It may not seem like much at the beginning, but with compounding interest and growth over 40 years, it really adds up. These recent graduates should also be made aware of the value of a Roth IRA during their lower income years. This type of account provides growth that is tax free when it is withdrawn. Even if they can only contribute for a few years, they will still benefit from the compounding and growth. Young people entering the workforce should also establish a savings plan early on. The “Pay Yourself First” strategy is always harder to implement later than it is at the start of working and being independent. Learning to budget with what is left after putting aside savings helps to maintain a lifestyle that is sustainable.

At River Wealth, we are always happy to talk to new “adults” about money, savings, employee benefits and retirement plans. It is important to us to educate not only our current clients, but also the next generation of clients. Establishing early habits in saving and investing will provide a strong foundation for future financial success.

Congratulations to all the graduates (and the parents/grandparents that helped them get there)!

Until next time,
Jen

P.S. - Don't forget to check out my Dream. Plan. Do. series. The latest episode featuring Angela Gualtieri, the owner of Red Salon in Mechanicsburg, PA. is out now. You can check it out here.

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