Success in the quarterlife – ah the dream – we all think it will be inevitable when we are in school. Sure, we’ll have to work hard, we know that, but those are just afterthoughts to the reality we know we deserve.
*SLAP!* That was real life slapping you upside the head!
The truth is nothing in life is easy, and while this is true of so many things, success is so much more interesting because success in itself is both elusive and subjective.
In regards to financial success, there are two basic frames of mind – the dream involving a pashmina afghan on the deck of your yacht, and then the more realistic concept of financial security. I am assuming most of our readers do not hang out with T-Pain or mermaids [see video] so for the matter of this article I will be focusing on the latter.
We would all love to be as successful at age 25 as #2 man, Mr. Mark Zuckerberg, on Fortune Magazine’s Top 40 under 40. Facebook is worth an estimated $10 billion but the basic concepts of success all start at the same place. Financial security grants one the ability and freedom to for such passions as creating great things.
I may not know about constructing a social network but I know the four main parts to personal finance that once mastered, can also give you that freedom. Get these four things right early on and your quarterlife – and the rest of it – will have no limit.
Debt
In my work as a loan officer, this is the single thing I see hold more people down & keep them from their dreams. Being free from debt is a success in itself. So many people would probably consider themselves successful if they simply didn’t have to fork over half their money every month to Visa, MasterCard, etc. The two that seem to haunt quarterlifers the most are excessive credit card debt and student loan debt. Credit cards should be doubled up on until they are paid off. Every extra dollar that can be spent on paying down credit cards can save you hundreds in interest and boost your credit score. Before you can start putting your extra money away for savings and retirement and investments, you need to pay off your high-interest rate credit cards.
Student loans, if federal, should be consolidated once you graduate if the rate is lower and the payments will be made smaller. As far as private student loans go there are no longer any companies consolidating these loans unless all the loans are with the same company anyway and even then the terms may not be any better. There are many options with student debt like deference and assistance with economic hardship or unemployment. There are flex payment plans, and interest-only plans, and longer term amortizations. All these options make student debt seem the lesser of the debt evils but you must remember that student loan debt NEVER goes away. It can be reworked until you are blue in the face, but you will eventually have to pay it off along with all the interest. Most student loans are even immune to bankruptcy. So use the tools as you need them, but if you have the ability, it’s probably about time to start paying them down.
Retirement
Ah yes, retirement, that thing way down the road. Why worry about that now? Two things: interest compounding and taxes. The money put into a 401K account are pre-tax dollars which means there are more of them because Uncle Sam hasn’t gotten his hands on them yet. Furthermore, most companies offer a 401K match, meaning that to a certain percent or dollar amount they will match every dollar you put into retirement with one of their dollars. This is FREE money people! If you are able, there is no reason not to deposit up to the level your company will match. IRAs are also imperative to planning your retirement. There are tons of online information on the pros and cons of both Roth and traditional IRS accounts, but regardless of which you pick, open one.
Savings
Managing a bank in my personal life, savings is the topic I feel the most at home with. My personal preference, and I know I’m going to get a lot of flak for this, has always been toward savings rather than investing. I know, I know, the market is coming back and things will be better than ever and so on. I just feel a little better knowing that my money is all accounted for, and I know the exact return before I buy in. Saving is nationally on the rise right now but the interest rate is still in the gutter, the average 6-month CD is down between .5 and .8 percent, and savings accounts are lower than that. I believe the best approach to saving in this economy is a two-pronged attack. You need to have a good relationship with a smaller community bank and utilize the great rates being offered by internet banks. My bank currently offers 2 percent on 6-month CDs and offers .75 percent on all savings accounts, while my current favorite with the internet banks is Ally Bank. They offer a high yield savings account with a 1.55 percent interest rate and no minimum deposit. I advise keeping a cash reserve with your community bank for quick access and keeping longer term savings in a high yield CD with an internet bank. Check out Bankrate.com for the latest rate offerings online and in your area.
Investment
I definitely feel the least safe in this field. I have never been an expert on picking stocks or investment plans for that matter, but I have owned a few here and there. I cannot stress the importance of caution and prudence in selecting investments in this economic climate and for those in the quarterlife age bracket. Yes, we are younger so we have more time to recoup our loses but at the same time, we have less income to work with and can’t afford to lose as much. Depending on how much you have to invest (and for most quarterlifers that’s not a whole lot), there are some great no-load indexed mutual funds some with minimums as low as $1000. Or if you feel pretty certain about one particular company and can do the research on your own sites like TD Ameritrade, Scott Trade, etc. are cheaper than ever. As your dollars grow, you can turn your portfolio over to a full service brokerage such as Fidelity.
For total control and understanding of your financial world and everything in it, one of my favorite resources for everyone is Money 101 from CNN Money.
Financial Security of Generation Y