Courtesy: Lilly Faust
When Lilly Faust graduated from college in December, she was fortunate to land a job right away.
She also managed to move out on her own, with a roommate, into an apartment in Montclair, New Jersey.
“I feel very proud of myself,” said Faust, 22, who is now a first-grade teacher in New Jersey.
“I was that broke college kid who was just trying to make ends meet,” she added. “It feels really good to have my own money coming in and being able to support myself.”
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She made it happen with careful planning.
Faust worked part-time jobs while attending New Jersey-based Stockton College and started her own business, selling clothing online. That enabled her to save for a down payment on an apartment. She’s now saving $1,000 per paycheck to go towards student loans and another $1,000 each pay period to live off of this summer, when she doesn’t receive a salary.
Transitioning from school to the adult world of work and money isn’t necessarily easy. Yet getting off on the right financial footing can set you up for success later on. Saving money
Many young adults think about getting rich quickly when investing, said certified financial planner Cathy Curtis, founder and CEO of Curtis Financial Planning in Oakland, California.
“A lot of young people have a distorted view on how to invest in the markets,” she said. “They invest in IPOs, companies they think are cool.”
In reality, you should be investing in index funds and watching your money grow slowly, she said.
Therefore, you should open a 401(k) if your employer offers one and contribute at least up to what the company matches, she said. If that isn’t available, you should open a Roth individual retirement account.
If you wait too long to start, you will miss out on the compounding interest that can really make your money grow, said CFP Tom Henske, managing partner at New-York based The Affluent Insurance Advisor.
According to an analysis by asset manager Vanguard, someone who starts saving $10,000 a year at age 25 in a 401(k) with a matching contribution and stops by age 40 will have more than $1 million in retirement.
Someone who starts at age 35 and saves $10,000 a year for the next 30 years will have $838,019 in retirement, according to Vanguard , which used a hypothetical 6% annual return and didn’t account for inflation. With time, you can invest less money but have more to spend in retirement A horizontal bar chart shows how much more money, thanks to compound interest, people have if they invest $150,000 between the ages 25 and 40 than people who invest $300,000 between ages 35 and 65.InitialinvestmentBalanceat age 65$0$200K$400K$600K$800K$1MInvests $150k between ages 25 and 40Invests $300k between ages 35 and 65Note: This hypothetical illustration assumes an annual, 6% return. It doesn’t represent any particular investment and doesn’t account for inflation. Chart: Gabriel Cortes / CNBC Source: Vanguard It’s also important to put money away for an emergency, separate from your retirement savings. Making a budget A budget essentially keeps track of what money is coming in, like your paycheck, and what is going out to pay bills.When setting your budget, treat your savings as a bill, Henske advised.“If you start with things like nights out and eating out and social things you will save just what is left over,” he said. “Don’t do that.“Start with what you save and put everything else around it.” Building credit Hatice Gocmen | Istock | Getty ImagesIf you don’t have a checking account, open one, Curtis said. The same goes for a credit card, as long as you use it responsibly and don’t accumulate debt.“Building credit is the foundation of your financial life as you get into adulthood,” she said. “The sooner you get that started, the better.”Your credit impacts everything from your ability to get a loan or rent an apartment to the amount of interest you’ll pay on any loans.If a credit card isn’t a good option right now, consider building credit with a secured card , which is backed by money you deposit into an account. Finding a job Vgajic | E+ | Getty ImagesAlthough the inflation rate is high and there are some concerns about a looming recession , college graduates are generally […]