Financial thoughts on turning 25

Vanguard indexing photo pageToday, on the 25th birthday of my favorite son, I happened to open Vanguard’s new brochure about low-cost index investing.  OK, yeah, so he’s my only son.  Anyway, page 11 seemed made just for my boy who loves the mountains, so instead of the post I had planned for today, I’m sharing the page and one of his stories with you.

My son graduated with some student loan debt, as is the case with most young people today.  When he landed his first job with employer benefits, he called me to see what he should do about 401(k) contributions.  He found himself in a common dilemma for recent college grads — do I want to start saving toward retirement or do I aggressively pay off student loans?  I asked him how much of his salary contribution would be matched by his employer.  He told me 6%.  I said, “There’s your answer.  Put in your 6% and get all the free money on the table.  It’s an immediate 100% return on your dollars.”

Depending on the amount of student loan debt and the rates you are paying and how well you want to sleep at night, it may make more sense for you to prioritize paying off the loans over saving for retirement.  However, even just 1% saved into your employer’s retirement plan is better than 0%, and it could garner you a 1% match by your employer.    An employer’s plan is easy and automated, so as your busy life continues changing, you have one less item to keep track of.  Establishing the habit, no matter how small, will reap rewards in the future.  My son reports that his gift-to-self has now grown to more than $11,000.

When you participate in your employer’s retirement plan (or contribute to your IRA), consider low-cost index mutual funds or ETFs to keep more of your dollars working for you instead of going to fees.  If you are unsure about these choices or need more information about getting started, go to the “Get-To-Know-You Meeting” tab on my website or the “Book Now” button on my Facebook page to schedule a 30-minute free conversation with me.  I want to help you launch for success just like the Birthday Boy, whether you are 25 (like him) or just feel 25 (like me!)


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