If you're a parent of a college grad, a recent college graduate or simply someone who wants to begin investing for the future, knowing how to start is the most difficult part. Should you listen to financial media and follow the latest expert's advice? That's probably not a good idea. But you can follow these 5 smartest money and investment tips to get started.
#1. Learn Money Sense
Sound investment decisions begin with understanding your money. If you're a recent college grad, you probably have student loans. You may be searching for your first job. You might be looking at the pile of credit card offers on the table, dreaming about what you'll buy with all that money. If you think of retirement at all, it's probably just a "someday" thought. It's both an exciting time and a frightening time. You have to learn about money and make smart decisions now. Big mistakes come back to haunt you sooner than you think.
If you're looking for your first job, it's tempting to place the greatest emphasis on salary. Salary is only part of the equation, however. Compare benefits, including medical and retirement, when evaluating a position. If the job requires a move, check out the cost of living and taxes in the area. That high salary might be eaten up by more costly living expenses.
It's never too early to start saving for retirement, even if it's a small amount. In fact, if you're still in college and have a job with a retirement or stock purchase plan, take advantage of it.
Be wary of credit card debt. It's not necessary to cut up all your cards or avoid them all together. You need credit to build up a solid credit history. But, don't use credit cards to purchase luxury high cost items. The trick is to use credit wisely and pay debts off quickly.
Create a budget and stick with it. Your budget might indeed change over time due to pay raises or higher expenses, but a budget gives you a clear picture of where your money goes. The lesson? Never spend more than you make.
Remember to budget for your student loan payments. If you have more than one student loan, you may be able to consolidate them into one monthly payment. You may also find better interest rates. Check with your local financial institutions, the American Education Services or Sallie Mae.
#2. Save for the Future
Aside from participating in a retirement plan, take other steps to prepare for a healthy financial future. Life will throw curve balls, but if you're prepared, you'll survive. Begin saving as soon as you start earning a salary. If you're check is direct deposited, specify a specific amount to go straight to savings. You won't miss it, but it'll be there if you need it. Financial experts recommend saving at least the equivalent of three to six months of your living expenses. Saving a year's worth of expenses is ideal.
#3. Start Investing
Now that your financial picture is clear, it's time to start investing. Investments you make now have plenty of time to grow. Historically, investing in stocks and mutual funds is the smartest way to grow your money in the long term.
To maximize your returns, seek the help of a qualified investment firm. Do your research before choosing a firm. If you search the internet, you’ll find lists of top-rated investment companies. The lists are usually compiled by independent publications and financial firms which have to meet set standards to make these lists. For instance, InvestmentNews has recently rated Registered Investment Advisers (RIAs). RIAs are usually fee-only companies and their success depends on how well they manage your money. Two example companies on the list are Fisher Investments, rated a top 10 RIA, which has billions of dollars they manage for clients, and Jasper Ridge Partners, a wealth manager for individuals and institutions based in Ft. Worth, Texas.
SmartAboutMoney.org, a National Endowment for Financial Education website, offers free guides about mutual funds, stocks and bonds. Also check out the American Association of Individual Investors, which often sponsors classes and local seminars to learn more.
#4. Stay Calm
Your financial future depends on your decision making skills. Managing your own fear and risk is essential when it comes to investing. Impulse buying, running scared, buying high and selling low are gut reactions that hurt you in the long term. There is no magic formula for stock market success. You need to evaluate, analyze and make objective decisions. Don't listen to the media "experts," follow the latest trends or do something simply because it’s what everyone else does.
#5. Know Yourself
Are you a natural risk taker? Would you rather bet on a sure thing? When you experience a setback, how ready are you to bounce back with ease? Your personality traits and how comfortable you are with stock market volatility will play a role in your investment strategies. A low risk tolerance doesn't mean you shouldn't invest, it just means you should select low-risk investment options.