1Q2019 | Ages 18 – 29
Rule #1 – Pay Yourself First
After experiencing apartment living in Atlanta following college graduation, two of my college buddies and I decided to rent a house near the hospital where we worked. Our new ‘bachelor pad’ was in a great location of town and afforded us plenty of space for the same monthly rent as our apartment. And then I remember the feeling of ‘adulthood’ that set in as the realtor called to request $2,500 for a security deposit.
One day, as I was sorting through the mail, I came across a letter from Vanguard Investments addressed to my roommate, Joe. Because of this moment, I credit Joe with some of my successes today.
After seeing his letter, I talked to Joe and asked when he set up an investment account. The conversation quickly revealed that, unlike Joe, I had failed to take advantage of the 403(b) retirement plan at the hospital. Through his 403(b) payroll contributions, the hospital match, and the investment growth over a 2-year period, Joe managed to save over $8,000. I was shocked. Nobody our age had $8,000. And Joe never felt like it was a burden to put away this money.
Most young adults tend to take the approach I attempted: paying myself first, then using the rest of my paycheck for rent, food and drinking beer on the weekends. I thought for sure my friends were doing the same thing.
What I learned were the three principles Joe practiced:
1. Pay yourself first. Directing money rather than spending money is a big key component.
2. Beyond arm’s length. Set up an account to hold your dollars apart from your regular checking account
3. Act as if the money doesn’t exist. Disregard the urge to spend the money you’ve put away.
I am uncertain if Joe continued to disregard the $8,000. Had he invested those dollars into S&P 500, his $8,000 would have grown to what would be over $58,000 today – a realized annual return of over 8%.
With the environment we currently live in, saving, investing and learning how to properly invest is accessible to everyone at a basic level. Learn how you can better your investment lifecycle.
Will Steih, CPA®
Managing Director – State of Tennessee
This commentary is for informational purposes only and does not constitute investment advice nor reference the appropriateness of any individual investment alternative.
Advisory services offered through Prime Capital Investment Advisors, LLC. (PCIA) a Registered Investment Advisor. Prime Capital Investment Advisors doing business as Qualified Plan Advisors, “QPA.” 6201 College Blvd., 7th Floor, Overland Park, KS 66211.