Investing and trading are like smoking. Both are addictive and can change the quality of your life. For the college graduate, here are five tips to starting a financially-healthy life:
1. Max out your 401(k)
This is the best way to get FREE money. Most employers will match your contribution up to a certain limit. There is one main choice in this area: Traditional or Roth. A traditional plan will take the deduction out of your paycheck before taxes; a Roth plan after. If you are just getting out into the world on your own and are strapped for cash, a traditional plan is advisable. It allows you to take home the maximum amount of money each month. The downside to this is that you will be taxed later in life when your individual tax rate may be higher.
Here's a quick example: Your paycheck is $1,000, contribution rate is 10%, and tax rate is 20%.
Individual Retirement Account- Traditional: ($1,000 - ($1,000 * 10%) = $900 - ($900 * 20% tax) = $720 take home pay
Individual Retirement Account - Roth: ($1,000 - ($1,000 * 20 %) = $800 - ($800 * 20 % tax) = $640 take home pay
2. Know Yourself
Picking individual stocks to invest in requires time for researching and analyzing different stocks. If you are not willing or able to put in the necessary time for research, let someone else do it for you. There are several avenues you can take in the mutual fund and 401(k) world. This will allow you to pick the general investment sectors, areas of the world, and risk level you want to invest in, but a professional will take over from there.