Money Management

The average young American has less than $15,000 saved for retirement. Read on to learn how new college grads have a once-in-a-lifetime advantage over peers. 

New grads may struggle to invest while repaying debt related to their education. But it’s doable, and those who start saving early have an advantage over most investors, who start investing much later in life. (For reference, the average American under 35 only has $13,000 saved for retirement.)

Investing as early as possible gives new grads more time for compound gains to grow their savings. Here are five investing tips for new grads (from the POV of a recent college graduate) in order of most to least importance.

1. Prioritize debt payments

While investments generate compounded returns, unpaid debt accrues compounded losses. If borrowers delay repaying their debts, they risk eroding a substantial portion of their investment earnings. The quicker graduates eliminate their debt, the faster they can grow their savings.

Track investments and debt payments to keep money moving on schedule. Missing a debt payment can hurt your credit score and cost you extra late fees.

2. Avoid leverage

Investing in the stock market with borrowed money, regardless of debt-free status, is risky. New grads are typically recent to the stock market and work lower-paying jobs. Leverage could add further instability to one’s finances.

Leverage compounds worse-case scenarios and encourages high-risk bets. As a new grad, I lost thousands in the stock market because I failed to recognize the risks posed by borrowing on margin. The best brokers for beginners help recent grads learn how to invest fast and easily.

3. Set a financial goal

Before investing seriously, consider setting a financial goal. Setting a goal gives you something to work toward and a benchmark to measure your progress. Common goals for new grads include the following:

Invest in an emergency fund. Save three to six months’ worth of living expenses.Invest in housing. Save for a down payment on a house or an apartment.Invest toward retirement. Many employers offer 401(k) matches to new grads.

Financial goals are great, but sticking to them requires good money habits. James Clear, author of Atomic Habits, offers simple, practical advice on forming good, sticky habits (and breaking bad habits, like impulse spending).

4. Start soon

Extremely successful and well-known investor Peter Lynch once said, “In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.” The sooner you start, the more you save.

New grads have more time to put their money to work by saving it than their parents. For example: Assuming an 8% annual gain, a 25-year-old who invests $10,000 every year until age 50 would be worth $731,744. But had they started at 35, they’d only be worth $271,838.

Time is an incredible advantage should new grads choose to take advantage of the stock market. Financial guru Suze Orman recommends young folks save for retirement via tax-advantaged individual retirement accounts (IRAs).

5. Diversify

Disasters like the COVID-19 pandemic can make or break your portfolio. Grads new to investing may want to consider diversifying into bonds, ETFs, or savings accounts to make temporary downturns less frustrating. (Frustration frequently leads to rash investing decisions.)

Plus, a well-diversified stock portfolio can maximize your chance of earning a return on investment. Experts at The Motley Fool suggest holding 25 or more stocks in a brokerage for five years for the best results. Consider diversifying in a manner that aligns with your financial goals.

New grads have a once-in-a-lifetime opportunity to invest early, giving money decades to grow. Combined with smart financial goals, it’s a chance worth taking.

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If you’re going to buy life insurance, it’s important to secure the right amount. Read on to learn more. 

If you have people in your life who depend on you financially, then it’s really important to buy life insurance. That way, if you were to pass away, they’d get a benefit that could potentially help them pay their bills without financial stress.

The amount of life insurance you need will depend on different factors. And your income is one of them. In fact, it’s fair to say that someone earning a higher salary needs more life insurance than someone with a lower salary. And so if someone earns a $50,000 annual salary, it’s probably best that they purchase at least $500,000 of life insurance, and possibly more.

Make sure you get enough coverage

As a general rule, it’s a good idea to buy enough life insurance to cover 10 times your salary at a minimum. Dave Ramsey, for example, says that a policy worth 10 to 12 times your annual income is a good bet.

But you may want your life insurance policy to do more than just replace a decade of earnings, or something in that vicinity. You might also want to secure enough coverage to pay off existing debts you share with someone else.

Let’s say you’re married and have a $150,000 mortgage loan. If you were to pass away, your spouse might struggle to cover that mortgage — especially if they’re not working right now because they’re providing full-time care for your young children. So in that case, if you earn $50,000 a year, you may want to aim for a $650,000 life insurance policy. That way, you get $500,000 to cover 10 years of replacement income, and you also get enough money to pay off your home in full.

You might also want your life insurance policy to include a sum of money to cover final expenses. The average funeral costs between $7,000 and $12,000, according to Lincoln Heritage. Adding that sum to your life insurance benefit could spare your loved ones the stress of having to cover yet another expense.

Choose your insurance benefit wisely

Buying too little life insurance could leave your loved ones in the lurch in the event of your untimely passing. But buying too much life insurance can be problematic, too.

If you secure more coverage than what you really need, you might end up struggling to cover your premium costs. And if you don’t manage to pay your premiums, your coverage could lapse.

As such, if you earn $50,000 a year, it’s absolutely a good idea to aim for $500,000 in coverage at a minimum. And you can add to that total based on your existing debts and needs.

But do you need a $1.2 million life insurance policy when your family is used to living on $50,000 a year? Probably not. And if you push yourself to buy extra life insurance, you might end up falling behind on not just your premiums, but other bills. You might also struggle to add to your savings — retirement and otherwise — so it’s really important not to go overboard.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Own a small business and struggling with work-life balance? Read on for tips on how to help things improve. 

When you own a small business, it’s hard to separate your work life from your personal life. That’s because your business is a big part of your life in general. And also, chances are, you spend a lot of time not only working on business-related matters, but thinking about them, whether it’s during your morning shower, your afternoon run, or your pre-bedtime routine.

Not so shockingly, Truist’s Small Business Pulse Survey reveals that 67% of small business owners are seeing their personal lives impacted by work. Many are reporting increased levels of stress and are having trouble sleeping. And a lot of small business owners are spending less time on self-care and are struggling to maintain close relationships due to the demands and stress of their work.

If you’re having a hard time separating your work life with your personal life, then it’s important to make some changes as soon as possible. Otherwise, you might risk upending your personal life and causing yourself undue misery.

It’s all about separation

Just as it’s important to have a bank account you use solely for personal expenses and a separate small business bank account that’s strictly for company expenses, so too is it important to separate your work self from your personal self in general. And while that may not be the easiest thing to do, it’s necessary.

First, set time-related boundaries. Map out a schedule that determines which hours you’ll be working during the week and which hours you’ll be spending time with your friends and family, tending to your health, and decompressing. And then stick to that schedule.

It’s okay to build in 30 minutes in the evening to check work emails or return calls. But beyond that, you need to push yourself to unplug.

Next, if possible, try not to bring work home with you if you maintain an outside office (if you work from home, clearly, this is harder to do). That will only make it more likely that you’ll end up doing work when you’re not supposed to be.

Furthermore, try your best to create a mental separation between work life and home life. If you’re married, you may decide that you’re allowed to spend your first 20 minutes each evening talking about work with your spouse or venting about things that aren’t going so well. But at some point, you need to stop talking and thinking about work, and start focusing your energy on other things. That could mean sitting down with your spouse to look at swatches for the living room couch you’ve been planning to buy or turning off your brain with a great Netflix series.

Don’t resign yourself to a lack of balance

It’s tricky to strike a good work-life balance when you own a business. But it’s an important thing to try to do.

Once you get better about setting boundaries, you may find that your mental health improves on a whole. And from there, you might have more energy to tackle the many challenges that come with running a company.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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