Coming out of college, many recent graduates land their first “real job,” and with that job generally comes a nice paycheck.
It’s tempting to consistently go out and treat yourself because for the first time in your life you all of a sudden have “so much” money. Especially when you are used to living off a budget that consists of eating Ramen noodles. I’m not saying that you shouldn’t reward yourself for all of your hard work and dedication, but just be conscientious of how often and how much you are treating yourself to.
It’s also important to remember that whether you want to admit it or not, you are now an adult living in the “real world.” With being an adult comes having to pay bills and needing to think about saving money and even investing for retirement. You are probably thinking something along the lines of “wait I just became an adult and now you are already talking about retirement?” Believe it or not, retirement will be here before you know it and it’s super important to start saving early. Many people have the habit of thinking that retirement is so far off and because of that they don’t need to start saving money anytime soon. They have the thought that “oh I’ll start saving when I reach 30.”
What they don’t realize is that by doing this they are losing out on years worth of the time value of money. According to The Small Business Chron, the meaning of time value of money is “A dollar today can be invested and earn interest over time.” An example of the time value of money is:
- Assuming an initial investment of $100, with an average rate of return of 8% in year one the $100 investment is going to be worth $108. This is calculated by doing $100 x .08 = $108. In year two the interest would be earned on $108. The calculation for year two would be $108 x .08 = $116.64. You begin earning interest on the interest previously earned.
In the first few years of investing you don’t see much of a significance in the time value of money, but over time you will see a substantial difference in your return.
Beginning your investment journey right out of college is a perfect time because of the fact that you are used to living on virtually no income. If you’re used to living on a very low budget, then trust me, as a recent graduate, setting aside money once you get a steady paying job isn’t too difficult. Especially if you are able to set aside money for savings or retirement before you even see your paycheck get deposited in the bank. Part of the reason for this is that many people, including myself, have the mentality of what they don’t see and can’t touch, they don’t have. This helps eliminate the temptation to “borrow” from yourself. If you haven’t already heard the phrase “pay yourself first,” then you are likely to hear it sometime in your life. Setting aside money for savings or retirement is doing exactly that. You are paying yourself before you have the chance to spend the money.
While it may seem depressing to not have as much “fun” money now you will thank yourself in the future when you want to retire to make a dream purchase. Remember, it’s never too early to start thinking about your future.