If you're hunting for your first job or just landed a new position, it won't be long until the paychecks start rolling in. Finally! You're rich! Ok, maybe not yet…
Building wealth takes time, and your first job is exactly when you want to start. Now that you have some disposable income each month (hopefully), you can take it and make it work for you. With a few good moves early in your career, you may be able to see an impressive return on your money, hopefully allowing you to retire and live a comfortable life when you're older.
To get started, check out these three steps you can take to help you build wealth as you start your career:
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1. Make a Budget
Before you can start putting money aside to build wealth, you have to make sure all your affairs are in order. That means taking out a piece of paper or pulling up a file on your computer and budgeting all your monthly bills and expenses. Once you've accounted for all your monthly necessities like rent, food, utilities and the like, the amount you have left over each month is overage that you can use however you want. It's always good to have some cash on hand for emergencies, but people who want to build wealth should be aggressively saving so they can attain their goals sooner rather than later.
2. Begin Building Savings
Once you've budgeted and identified how much you can afford to save each month, designate an account or accounts that you want to put your savings in. The best way to make sure you consistently save every month is to set up an auto transfer with your bank to move the amount directly from your checking to your savings account or accounts (ideally on payday). Look for a special savings account with high-yielding interest. Some accounts offer better interest than others, and options like this will help you optimize your savings. Within reason, you'll want to save as much as you can without making other aspects of your life uncomfortable. And be sure you build up and maintain an emergency fund first in case of unexpected expenses, such as a car repair or medical expense.
3. Start Thinking Investments
Putting money aside in savings is step one. Once you are comfortable in your job, and have accumulated a small amount of savings, consider taking the next step by investing your money. There are many ways you can invest, and if you're just starting out, it might be better to find a less volatile and more secure option so a turbulent market doesn't deplete your funds. Do some research before you get started. Here are a few investment options that can be key to building wealth over time:
- If your employer offers a 401(k) plan, this is the place to start building wealth. A 401(k) is a retirement savings plan offered by employers to help employees save for retirement. Many employers also offer some type of employee match, which is essentially free money you can use to invest in your future. A 401(k) also takes money out of your paycheck pre-tax, so you'll end up paying less at tax time than you would if you didn't invest it. It tends to be a safer investment option than other vehicles, and over the long term can be quite rewarding depending on your contributions.
- An individual retirement account (IRA) is another relatively safe and easy way to save for retirement if your employer doesn't offer a 401(k). Traditional IRAs and Roth IRAs are subject to special tax rules and sometimes have slightly more flexible withdrawal policies than other retirement accounts.
- Consider using an investment app to test out investing a small amount in the stock market, without needing to become a full securities expert. New apps have made it easier to invest your money in stocks, allowing you to control your accounts from your phone. Some companies offer investment assistance and some will invest your savings for you, only asking you for input on how aggressive you want to be with your money.
Overall, building wealth is about starting early and making the right decisions with your money. You can't go wrong by starting to save as soon as you have the means. And as you continue to save, research your options to optimize your financial potential.