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Business & Real Estate

Advice for those starting their first jobs

Many of my clients want me to have a chat with their children before they start their first jobs. I begin the conversation by telling the new graduates that rather than lecturing them, I simply want to share my own “wish I had done that” experiences, hoping that they will benefit from them. Following are my words of advice.

Start saving early, often

“My wealth has come from a combination of living in America, some lucky genes and compound interest,” Warren Buffett once said.

Compound interest could be one of the most powerful tools in the financial universe. For example, Sally starts saving $700 per month when she turns 30. Assuming a 6 percent rate of return, she will accrue $1 million by the time she turns 65. Do I have your attention now? Someone who starts saving at age 40 or even at 50 will have to save a lot more to reach that $1 million mark by age 65.

For more information on the power of compounding, see my April 12 Town Crier column (“Double Your Money”).

Buy a used car

While it may be tempting to buy a flashy, expensive car with that first year’s salary, you may be paying much more than you realize. Insurance, maintenance, gasoline and car payments with interest take a bite out of your wallet. Depreciation takes an even bigger bite.

A rule of thumb is that a car halves in value every four years. Rather than purchasing a brand-new car, a better idea may be to buy a dependable car that is lightly used to lower your depreciation cost.

For more reading on depreciation, see my May 10 column (“How to understand the true cost of car ownership”).

Add to a Roth IRA

People under age 50 can contribute up to $5,500 ($6,500 over age 50) after tax every year if their earned income is under a designated limit. The amounts you contribute can compound, grow and build a nice nest egg by the time you reach your 50s. What is even better is that the gains in a Roth IRA are tax free, provided that you tap into it after age 59 1/2.

Take advantage of 401K matching funds

There are four types of money: free money, tax-free money, tax-deferred money and taxable money, obviously in decreasing order of preference. A company’s 401K matching funds fall in the free-money bucket. If your company is matching up to 5 percent, then you should consider contributing at least that much to your 401K. Otherwise, you are leaving free money on the table.

Pay off student loans

Many of us have student debt when we graduate. With annually increasing college tuition, loans have become an unfortunate fact of life. Try to pay off student loans sooner rather than later. While that may mean tightening your budget and expenses for the first few years, eliminating the debt will enable you to focus on building your net worth and saving for the future.

Cultivate mentors

You are the product, and you should be building your own “brand.” Be conscious of how you are viewed by your managers and co-workers. It is important to cultivate career mentors along the way. The right mentors can guide and inspire you to reach your true potential. You will be surprised at how many seemingly busy and important people will make the time to talk to a young person seeking career or entrepreneurial guidance.

Persevere

Don’t be afraid to fail. The United States continues to be the land of opportunity, despite what some headlines may say. Your 20s are an excellent time to learn, start new careers and businesses, fail and start all over again. Go forth, enjoy the adventure and never stop learning.

Arvind Ven is a Los Altos resident and independent financial adviser with Liberty Group LLC. For more information, email This email address is being protected from spambots. You need JavaScript enabled to view it..

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