A Top Financial Priority After Graduating College

You have put in the work (and the time) and graduated college. Congratulations! According to a Pew study released last year, you have also broadened your shield against the adverse effects the recession has had on the job market. There will be plenty of temptations to spend what you earn in paycheck-to-paycheck fashion during your first few post-grad years. However, opening and contributing to a retirement account with even a small portion of your monthly earnings is worth the requisite diligence (and sacrifice), and here are a few reasons why it should be one of your top financial priorities after college.

Starting and Maintaining Good Habits

Bad habits can form quickly and easily. Conversely, good habits tend to be slow to form. Living paycheck-to-paycheck has its perks – any positive number you see in your bank account can immediately be taken to the store (or the internet) and spent in a short period of time. Re-fund the account, repeat the process, and experience the bliss of consumption.

Even if you are planning to indulge a habit like this for just a season, it could be more difficult than you think to abandon the mentality. Aristotle once said, “Good habits formed at youth make all the difference.” Because you will most likely live beyond the age of 30, solidifying the habit of repetitive saving in your financial youth could be crucial to your financial future.

A Little Becomes A Lot with Time

Once you have begun forming the habit of saving, the idea that time usually adds value to money should be an encouraging prospect. One of the reasons a Roth IRA, in particular, is a great vessel for your savings is because it adds both discipline and incentive to help you take advantage of time value. That discipline comes in the form of certain distribution penalties, and the incentive comes in the form of tax-free earnings (if you are disciplined enough to leave earnings alone until age 59½). A Roth also gives you the flexibility of a savings account by allowing you to withdraw any contributions (not earnings) at any time for any reason. This flexibility may come in handy if you decide to pay off a student loan with one lump sum, for instance.

Take Investing Risks Early

Making retirement savings a top priority after you graduate from college will also give you the chance to make riskier (and potentially more lucrative) investments. The longer you wait, the more likely you will have major things like a family, or a house, depending on your portfolio’s performance. The tendency is to become more conservative with age in terms of one’s personal investing strategy.

Avoid Having to Catch Up Later

A standard savings account tends to be used for shorter-term goals like vacations, cars, and houses. To avoid having to catch up on retirement savings later, and to take advantage of your (probably) lower tax bracket now, a Roth IRA could be a great move in your twenties.

While there are undoubtedly other important parts of your overall financial budget (like student loan repayment management), saving early and often should consistently be at or near the top of your list in your first few years after graduation. The mentality created by your retirement savings efforts, regardless of how monetarily small, will help you sustain this good habit well into your future.

Article courtesy of Patrick Russo, Community Outreach, http://www.depositaccounts.com.

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