When Mr. McGuire hustled Dustin Hoffman’s Benjamin away from the noisy party crowd, he only had one word for the newly minted college graduate: “Plastics.”
While that single utterance from the movie The Graduate ranks high in the American Film Institute’s list of top 100 movie quotations (even higher than the film’s seminal “Mrs. Robinson, you’re trying to seduce me! Aren’t you?”), it’s not the one word of advice you’d hear spoken at college graduation parties today.
It’s commencement time and that means it’s time for college graduates to commence with their lives. With all the uncertainty, with all the student debt, with all the tempting freedom, these young adults could use some sound counsel.
If you were to hear just one word of guidance, what would you expect it to be?
“Awareness,” “responsibility,” and “patience” represent just a few wise words college graduates should embrace.
“Most of your life is ahead of you,” says Joshua I Wilson, Chief Investment Officer at WorthPointe Wealth Management in Dallas. “There are a lot of things you’ll want to accomplish. You won’t be able to achieve many of them as fast as you’ve achieved other goals so far in your life. The key now is to get started.”
But there is one word on those most experienced lips that, if followed, will make every college graduate rich.
When you hear it, you’ll shrug your shoulders in a “tell me something I don’t know” way. It’s obvious. It’s simple. It’s nearly fool proof. Unfortunately, it’s more honored in the breach than in the observation.
In a culture that brushes aside four-letter words that once shocked, there remains one such term that sends cold shivers down the spines of many twentysomethings. Yet, it stands as the key to untethered wealth.
It is the word that has replaced “plastics” at graduation parties. The word is “save.”
“Save early and often,” says Ed Snyder, President of Oaktree Financial Advisors, Carmel, Indiana. “Time and the amount you save are the two most important factors to how much money you will accumulate for retirement.”
A college graduate who immediately starts saving today can become a multimillionaire tomorrow.
Here’s how you can do it: Start saving in a retirement plan as soon as you start working.
The government currently allows you to save a maximum allowable annual IRA contribution of $6,000 per year. It’s possible to save more in an employer’s 401k plan, but not all employers offer 401k plans. The IRA savings option is available to you no matter where you work.
The numbers can be quite compelling. If you start saving the IRA maximum ($6,000) every year from age 22 until age 60, and that savings grows at 8% (that’s 2-3% less than the historic average annual return of the stock market), you’ll retire with more than $3 million dollars at age 70.
Yes, it’s that easy to retire a multimillionaire. In fact, it’s so effortless, you might wonder why more people don’t assertively control their own destiny. That’s where that awful temptation comes in to ruin your life.
“But how can I save when I have living expenses and a huge student loan?” you might ask.
Of course, it’s worse than that. While you might ask that question, what you’re really thinking is “Hey, I’ve been sacrificing all my life! Now it’s time to treat myself.”
This is the real obstacle to early saving. “It’s often the hardest thing for college grads to do,” says Fred Leamnson, Founder & President, Leamnson Capital Advisory, LLC in Reston, Virginia. “When you land that first job and get the salary, you may think about all the things you can get your hands on that you couldn’t afford in the past. That will kill your future plans.”
Some will warn you by describing your immediate decision as a choice between living comfortably today versus living comfortably tomorrow. That’s not necessarily the case. Just like you had to devise a plan to achieve conflicting priorities in college, you can apply the same strategy after college. You can save as well as tackle other expenses.
“Make savings a part of your budget,” says Leamnson. “Automate it by having your employer take money directly from your paycheck into a bank or investment account.”
And you don’t have to take on this task by yourself. If your goal is to save $500 a month (that equals $6,000 a year), you may get help from a couple of different sources. First, if your employer has a 401k and offers matching contributions, you may only need to save $300-$400 a month. In addition, your parents may be in a position to gift you money to save.
With this outside help, you may discover that onerous $500 out-of-pocket per month might suddenly be reduced to $200 or $250. That’s a couple hundred bucks that can go to paying down student debt or buying that treat you’ve had your eye on since sophomore year.
You mustn’t think of your personal finances as an either/or situation. It is possible to achieve multiple goals—if you allow yourself time. It’s critical, however, to take advantage of that one word whispered to every college grad who seeks to make a fortune.
“Save! Save, save, and save some more,” says Adam Dechtman of Dechtman Wealth Management in Denver. “Graduating college students are entering the accumulation phase of their life cycle and lerning good saving habits early can make all the difference later in life.”
Make a difference in your later life. Save today.