Saving Your Way to the Good Life
Young investors stashing away a little cash can become rich through compounding.
Jan. 20, 2009 — -- When it comes to saving and investing, the greatest advantage one can have is time. The power of compounding works almost magically over decades. That's why a recent college graduate is thinking right even if she's not sure how to save.
Question: I'm 23 years old, graduated college this past May and have just started a new job. Even though my expenses are low (my car is paid for, my rent is cheap, I don't drink and I have minimal student loans) and I make good money ($40,000), I don't seem to have much breathing room when it comes to my finances, and I have no idea how to manage them. I know I need to save money, and I always did in college, but I don't seem to have hardly anything left over after paying bills. What are some money managing tips for those of us who are entering "the real world" for the first time and beginning to build credit?
- Marisa, Dover, Del.
Answer: Marisa, congratulations on completing your education and beginning your career. Despite your apparent difficulty saving money at this point in life, it sounds like you have exactly the right attitude. The fact you recognize the wisdom of setting aside money at a young age puts you ahead of many of your peers.
As to your question about how to save, the answer in some ways is quite simple: Put your savings on auto pilot.
By that I mean find a way to save automatically each time you get paid, whether it's weekly, biweekly or monthly. Arrange to have a set amount deducted from each paycheck and directed electronically into some type of savings or investment account. That way you don't need to think about it and the money is removed from your checking account before you find a reason to spend it.
I find that the strongest force in personal finance is inertia. Get started on the right path, and you will probably continue to head in that direction no matter what else happens in life.
