Students demanding minimum wages
NEW YORK CITY – APRIL 15 2015: students, adjuncts & organized labor activists gathered at Columbia University for a rally & march to an UWS McDonald’s demanding $15 per hour federal minimum wage
a katz /

Okay so you’re out of school, you have a job — maybe not your dream job, but a job — and you’re beginning to actually (*screaming*) make money. For the first time in your life, your checking account rises above $100. Now the next round of drinks can be on you. Now you can afford to buy that thing you want because you’re worth it. Stay away from the mistakes below and you’ll spend — and save — your way to a comfortable future.

1. Most 23-Year-Olds do not save enough money.

It doesn’t matter if you make $100,000 per year or $1,000 per year — save 10-20 percent of your yearly income. Putting aside a portion of each paycheck isn’t easy, but you can’t put a price on the security this cushion affords you. Keep in mind: This is not money you spend on a dream vacation or purchase. This is money you just sit on, for no reason, in case something expensive happens. Trust us, it will eventually.

2. They start spending like adults when they could get away with spending like college students.

Once you get a job and start making some actual coin, spending money becomes socially acceptable and even encouraged. But consider that you’ve got the rest of your life to spend like you make money. Take the opportunity to spend like a poor student while you’re still young enough for that to be normal. You can buy everybody a round one day soon when you’ve got emergency savings and a healthy retirement account.

3. They do not pay down debt as quickly as they should.

Paying down debt before other forms of saving makes more sense when you consider debt as an investment. Let’s pretend you have $100. You can either repay a $100 debt with a 12 percent interest rate or put your cash in the stock market that returns, on average, 8 percent per year. If you choose the market, you’ll have $108 by year end. But in the same amount of time, your $100 debt just became $112. Now you’re in the hole $4 when you could have paid the debt immediately and broken even. This same principle works no matter how large your debt is. As long as your interest rates are higher than the gains you stand to make on an investment, the debt repayment is the better choice.

4. They do not contribute to a 401(k) or IRA.

This is the single best thing you can do for your future. Contributing even 3 percent or 5 percent of your yearly income into a tax-advantaged account like a 401(k) or an IRA at a young age will give that money many years to mature and grow. Start saving as soon as possible!

5. They do not take advantage of an employer match.

If your employer offers match on 401(k) or IRA contributions, you absolutely must take advantage. Electing not to do so is equivalent to refusing free money. Setting this up should be your first priority after finding a job. Your company should have an appointed contact for these financial questions. Don’t be afraid to reach out and ask any questions you have.

6. They do not pay off credit cards immediately.

Every single dollar of interest is a dollar you don’t have in your pocket — and the debt repayment principle from No. 3 still applies. Only use a credit card for what you can afford to pay off at the end of the month. And if you can’t restrain yourself, limit your spending to only what you can pay off immediately. This might require you to spend nothing for one or two paychecks while you build up some savings. It might not be easy, but you should find the wherewithal to do it.

7. Lastly, most 23-year-olds spend more than they earn.

You’ll be rich one day if you can understand this principle: Spending money doesn’t make you rich. Saving money does. If you make $100,000 per year and spend it all, at the end of the year, you’re broke! No one cares that you made 100k. You can’t buy a bus ticket.

The big secret to riches is savings — this is why the 1 percent get richer and the rest of us don’t. If you manage to save $7,142 per year at 23 years old onward, you’ll have $50,000 to invest by age 30. A conservative return will net you 8 percent, which makes you an additional $4,000 per year. Hello vacation fund! Now you don’t have to spend money on a vacation; your savings earned it for you.

Not everyone can save $7,000 per year. But think carefully about what you can live without. That handbag, those sneakers, or that trip in the Uber could’ve been saved. Over time, these little purchases add up, and if invested wisely, they’ll start to make you money, and over the course of a lifetime, perhaps a tidy fortune.

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  • Max

    One thing to note is that when starting out with credit cards, get a 0% intro rate card. This allows you to make a “few” mistakes (like spending too much to pay off for 1 month) without having costly penalties. You can almost think of it like “training wheels” my first card was the Chase Freedom, and I am thankful that I was given that ability as it allowed me to try a few different payoff strategies to find out what worked best for me as a young adult.

    • Max, I know that many people think that a 0% APR card will lead to overspending. But, more often than not, I’ve run into people (like you) who are actually very conscious of the fact that it doesn’t mean unlimited spending.