I expect to be around for a long, long time. Long enough to glare at your boyfriends, to walk you down the aisle, and to coo at my grandchildren.
But you never know. And since I’m a financial advisor, I thought I should write down some of the most important financial guidance I know, in case I can’t tell you in person.
Keep saving. Remember when you put the money from last summer’s job into a Roth IRA, and I showed you how much it could grow as you get older? That few hundred dollars can turn into many thousands. If you keep saving, especially when you’re young, those thousands could turn into a million, or more.
Save 10% of everything you ever make. You really need 15% to be able to retire comfortably and on time, but your employer might match part of your retirement savings. Keep using the same system you’ve been using since you got your first allowance: put 10% of any income into your poor box for charity, 10% into your “spend soon” bank, and 10% into your “save for a long time” bank.
Keep cash in an FDIC-insured bank account, enough that you never need credit cards. You’ll want an amount equal to 10% of your annual income. Twice that amount should be set aside for emergencies in cash in an IRA or a CD. (If you’re self-employed or paid on commission, double these amounts.)
When you’re ready to invest, keep it simple. Don’t buy individual stocks—use index mutual funds with low expenses. You’ll have automatic diversification, and most years you’ll beat most non-index funds (the ones trying to beat the market). You really only need three funds: one for large companies in the US, another for small companies in the US, and one that’s widely diversified overseas. With three of my favorite mutual funds, you can invest in more than 4,500 different companies (for 0.40% or less).
Remember, consumer debt is toxic. Credit cards will destroy the financial security of many of your friends. Protect yourself by paying off your credit card bill (and any other consumer debt) in full every month. But don’t worry too much about your mortgage. Get a 30-year fixed rate, and don’t rush to pay it off. Instead of paying extra, add the surplus to your savings and investments instead.
There’s a lot more that I don’t have room for here. Once you start working, get the help of a fee-only financial advisor. (Be careful—people who call themselves “fee based” take both fees and commissions, and you want someone who takes no commissions, ever.)
Don’t worry. You don’t have to get it perfect. Just try to make things a little better every month, every year. And you’ll be fine.
Have fun, and when your kids are born, give them a kiss from their Grandpa for me.