Right after I graduated from college and started my first “real” job I had to find a place to live, build a more professional wardrobe, pay off student loans, and purchase a few pieces of furniture for a new place. Unfortunately, all of these things cost money, which, as a recent college grad, I had very little of.
The idea of investing at that point didn’t really seem like a possibility for me. I got control of my finances not long after, though, and starting investing for my future. Of course, not all college graduates are in the same position as I was. Still, that brings up the question, should new college grads really start investing, or should they concentrate on other areas of their finances?
Why You Should Invest
As a recent college graduate, you may wonder why you should invest rather than focusing on other financial matters, at least for the first few years. The answer is time. The more years you have between just starting out and retirement, the more money you could gain through investing. The reason for this is compounding interest. For example, investing $1,000 with an interest rate of only 5% gives you $1050 at the end of one year. At the end of year two, by leaving all of the money from year one invested, you would have $1,102.50. That is assuming you do not add more money to the initial investment. But what’s great about investing is, the more you add, the more you make in interest. Not only that, but the interest gains interest, as you can see above because your gain at the end of year two is higher than at the end of year one. This is how compounding works. So, the sooner you start investing toward the future the faster you will grow your money for whatever goals you have.
Invest Through Your Job
If you are going to work for someone else, they may offer a 401K plan to help you get started investing for your future retirement. As a new graduate you may think that is so far off why should you start worrying about retirement now when you are barely starting out in the world? One good reason is because your employer will match a certain percentage of contributions on your behalf toward your retirement fund. In other words, one of the benefits offered by some employers is free money. These contributions are also held out of each paycheck before taxes. This gives you an added benefit in tax savings in addition to the investment contributions they make. You get some say in how the money is invested which also determines how fast your money grows. This is one area of investing you should take advantage of, even as a new college graduate with limited funds.
Invest on Your Own
Having limited funds can be a challenge as a new college graduate and you may think investing on your own isn’t possible. I once thought that too. But it is possible to work on paying debt, building an emergency fund, and investing if you decide you want to. It just depends on how you prioritize your income.
For instance, you could choose to set aside a few dollars each month for an emergency fund while paying just the minimum on your debt. Meanwhile, put a little money into another account designated for future investing. Before long you will have a few hundred dollars saved up to invest on your own, and that’s all you need to get started investing in the stock market.
I know from personal experience that it can be difficult to find the money to start investing as a new college graduate. However, the rewards you will gain in the future are worth it.
Do you think new college grads should start investing?
Kayla is a personal finance blogger in her mid-20s who loves to write about money topics of all kinds.
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