The very best financial advice for new college graduates and other young people is to start investing now. Time is on your side.
If, starting at age 21, you save $5000 a year for 11 years and never add one more penny to those savings, at age 60 you will have almost twice as much money as someone who starts at age 35 at the same rate of return (assuming 8%) and saves $5000 a year until he is 60.
Although you have only saved $55,000, and you didn’t have to save any more after age 31, you will have $837,492 at age 60. The person who didn’t start until age 35 must save $5000 every year for the remaining years until he is age 60. He has to save $130,000, and he will still only end up with about half what you will have ($431,754.) You only have to save for 11 years but he will have to save for 26 years and still come up short by half. This is the power of compounding.
The wonderful thing about this principle is that after the first 11 years there is no more effort involved on your part. Time and your money are doing all the work for you. Warren Buffett would call this the snowball principle. He advises that you find a long hill (your investing horizon) and start a snowball (your savings) rolling down it.
But save and invest now because if you let this opportunity go by, you will never get the chance again. As you can see from the example when you are thirty or forty you will have missed the boat (or the hill.)
Another important tip is to live below your means. Begin the habit of seriously considering your expenditures and the impact that they will have on your financial security. Never fall into the trap of believing that if you can afford the monthly payments that means you can afford the item. You can afford the item if you can pay cash for it. Monthly payment plans are only a clever selling technique intended to get people to buy more than they can afford.
Educate yourself about financial matters. Many people have had no financial education in school and they have learned their financial lessons the hard way, and often too late to head off financial disaster. You can be a responsible consumer, reduce waste, secure your financial future, and help make the world a better place.