Rare is the college student who earns a lot of money. But no matter how much money you earn, now is the time to start thinking about retirement planning. One of the biggest regrets among retirees is that they didn’t start soon enough. Here are five tips that every college student should know about retirement planning:
1. Start saving.
No matter how much money you make, it is important to allow room for savings. Live below your means. Sometimes you may only have $10–$20 to put into savings, other times you may have $100. People get caught up about how much they’re saving; but at this age, it’s far more important to simply be saving — whatever the amount.
2. Open and contribute to an investment account.
If you work for a company that offers an employer sponsored retirement plan, sign up and contribute monthly. A 401(k) plan is an easy way to save for retirement: this money comes right out of your paycheck, you don’t have to do any active management of the investments, and you can always roll it over to another 401(k) or IRA when you change jobs. Best of all, many companies will match your contributions to a 401(k) plan. If your employer matches, try to contribute at least what they will match. If you do not work for a company that offers an employer sponsored plan, you can open up an individual retirement account (IRA).
3. Maintain an emergency account.
Putting money away for retirement may be premature if you don’t have rainy-day savings. You should have an emergency fund with about six month’s worth of living expenses. This should be in a Separate account from your retirement or other savings. Having separate accounts will help you avoid dipping into your retirement or other savings for unexpected emergencies (losing your job, car repairs, etc.).
4. Say no to debt.
Many college students have some form of debt — student loans, car payments, or credit card debt. If you do, it’s important to pay down that debt. Most student loans are deferred until after you graduate, so if you have other debts, focus on paying those off first. Also, avoid accruing new debts. Save for big purchases instead of charging them. We all hear about college students graduating with huge debt burdens that in many cases stifle future plans. Some debt — like student loans — can work to your advantage (for example, if it allows you to get the education you wouldn’t otherwise); but generally, the less debt you have, the better off you’ll be.
5. Knowledge is power.
Stay knowledgeable about your money and about the economy. Learn about your options, talk to a financial adviser, seek counsel from your parents or grandparents, and read financial articles. The more you know, the better able you will be to make financial decisions. For many young people, college is when you discover who you are and who you want to be. It’s a time to break away from the family unit, meet new people, have fun, try new things. Although retirement planning is often far from college students’ minds, it is the perfect time to start saving. Please feel free to call if you have any questions or need help getting your plan started.