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I started my career in education seven years ago so many of my students from my first few years of teaching are now entering the work world in their early twenties. Many of those students have reached back out to me to connect on LinkedIn and other social media sites. Those students are beginning to see my posts for this blog and realize that I have a strong passion for personal finance which in turn leads them to ask for advice.
So, congratulations on beginning your new career. Now, it’s time to plan your exit strategy. You may be confused by that last sentence, but let me explain. If you’re anything like me you are so excited and finally feel like life is about to start. Up to this point, you’ve spend most of your time in school and now it’s time to make your mark on the world.
You now have the ability to design your life. Many of the young folks I know who recently graduated college have landed jobs and moved back in with their parents to save some money.
So, here’s my advice: Take this time to work hard, invest in yourself and plan your exit strategy!
Here’s the reality — you probably graduated with honors from a prestigious school and are ready to show your colleagues how brilliant you are. Don’t. You don’t know everything. You will not enter the work world making six figures, nor should you.
Keep your head down and work hard. Be the first one to the office and the last one to leave. Show your colleagues how hard of a worker you are through your actions. Learn how to ask questions in a way that will not offend others. Learn to ask why things are done a certain way and if your answer is, “because that’s the way we’ve always done it,” then continue to ask why.
Lastly, while you are working hard…ask questions. Don’t assume. Just ask. Maybe there’s someone who can be your mentor who you can talk to when you don’t know how to do something or why something is done the way it is.
Invest In Yourself
First things first — invest in yourself financially. On your first day of work (or today if you’ve already started your career) setup a retirement account and begin investing. You will want to talk to your Human Resources department about the options. You will either start a 401k or a 403b depending on your place of employment. Don’t worry too much right now about what funds to choose within your retirement account; the main thing is to start contributing.
If your employer offers a 401k, most likely they will match your contributions up to a certain dollar amount or percentage. Make sure you are, at the minimum, contributing enough to get that match which is FREE money!
You might be thinking right now, “Well, how much should I contribute every month.” Great question, I’m glad you asked! The maximum contribution in 2019 to a 401k/403b is $19,000. That works out to about $1,580/month. Most likely you’ll get paid twice per month which means you can contribute about $790 per paycheck to your 401k or 403b.
If you live at home and have very few expenses, put in the max…which brings us to my next point.
Know Thy Expenses
Stop what you’re doing right now, open up a Google Sheet and begin listing your monthly expenses. Did you forget any expenses?
Hopefully your expenses are less than your income at your new job. If not, then you need to reduce your expenses or get another job.
If you’re living with your parents, your biggest expenses might be student loans, rent (if applicable) and food. When I say food, don’t go out to eat every night. Learn how to cook and make your meals at home.
Don’t put off your student loans. Did you know that your student loans will be with you forever until they are paid in full. There are a couple different ways to get them paid in full, but the point is that you need to work to get them paid off. Don’t wait, setup a payment plan and get those things paid off ASAP.
As you’re listing your expenses and comparing it to your income, hopefully you have money leftover. As you’re thinking about what to do with that extra money, please do not do what I did. Do not go out and buy a new car. A car is not an investment. A car is a depreciating asset meaning your car’s value will go down every day. You want to invest in assets that the values increase.
So, what do you do with your extra money. Invest it! Sounds super boring, right? Yup, it should, but you will thank me in about ten years. Open an account at Vanguard or Ally Bank and start stashing money.
Plan Your Exit Strategy
But I just started my career, why should I plan my exit strategy. I’m not talking about leaving your job. Don’t leave your job, especially if this is your first real job after college. If that’s you, you need to stay at that company and work hard before you even think about leaving for more money.
The exit strategy I am talking about is, first figuring out how to move out of your parent’s house and second, investing so you can have the freedom to choose when and how to work.
Here’s how you plan your exit strategy to move out of your parent’s house. This is going to blow your mind…Save Money! Now that we figured that out, let’s talk about the more important exit strategy of having the freedom to choose when and how to work.
Do you want to work for the next fifty years because you have to or do you want to work when and however you want because you choose to?
I have a friend who is nearing retirement age and he has lived his life impressing others. Saving for retirement was an after-thought. He wanted that boat, vacation house, ATV, new cars every year, and on and on and on. Now that he’s a bit older, he wants to retire, but he can’t because he never created an exit strategy.
I have another friend who is in his late 30’s and has lived life executing his exit strategy that he created in his early 20’s. He always paid cash for older cars, never had a fancy house or vacation house nor did he own a boat. He’s currently living in Thailand with his family because he wants to. He chooses when he wants to work or not because he saved most of his income until he decided to retire in his 30’s.
Now, obviously there are many different paths that life will take you and it’s not always easy, but the point is that you choose how you spend your money and time.
I hope you spend your money by investing in yourself and saving most of your income and I hope you spend your time by helping others and becoming a lifelong learner.
I’ve shared this article before, but it is so critical to your exit strategy. Money gives you freedom and flexibility, so save it and protect it. Check out The Shockingly Simple Math Behind Early Retirement.
Oh, before I forget, if you’re reading this and you’re in the middle or nearing the end of your career, much of this article also applies to you. As Mr. Money Mustache illustrates in the article I linked above, if you can save 64% of your income, you can retire in a little over 10 years.
You can be less than 10 years from retirement and begin planning your exit strategy. It’s never too late!