An Open Letter to My New Adult Child

My Darling Daughter:

I am so proud of you!  I know at times college and the years before were a struggle, but  you've made it!  You have your degree and now you are ready to make your way as a adult in this world--as soon as you find fulltime employment at a wage that will allow you to move out.  Until then you may live here in return for a token rent check and any chores I need done.  I love you and I want to see you succeed in this world and so I have the following advice for you:

Get a Job

I know you want a career, an exciting job in a field that is interesting to you, and I hope you find it--but until that happens, get a job, any job--a job that requires you to show up on time every day and that expects you to be self-directed and to stay until quitting time.  One that pays decently would be nice too--but honestly, right now, get a job.  The longer  you don't have anything the more you look like a slacker to a potential good employer.  

Open a Roth IRA

There is an old adage--pay yourself first.  I know that retirement seems like a lifetime away and that you see so many expenses coming your way before that time, but believe me, you can never start saving for retirement too early.  Compounding is magical.

You don't have to put a lot away,but earmark a few dollars every paycheck for a Roth IRA. You can open one at the bank or if you have $1,000, most mutual fund companies would be glad to have you as a customer.

Why a Roth IRA?  There are three main types of tax-advantaged retirement savings accounts.  I talk about the 401k below and if you can't swing both your 401k and a Roth IRA, I'll give you a pass on the Roth. .  While contributions to a regular IRA are made post tax and the account grows tax deferred, the problem with both the regular IRA and the 401k is that you cannot withdraw the money without paying taxes and penalties until you are retirement age (and at that point  you will still have to pay the taxes).  While Roth IRA contributions are post-tax, you'll never pay taxes on the earnings--which if you leave the account alone until you retire will be far more than the contributions.  However, if you need money one day for a wedding, a car, a down payment on a house, or to stay home with my beautiful grandchild, you can withdraw your contributions with no penalty. 

For a young adult like you, the Roth IRA offers both the most long-term tax savings and the most flexibility to use your money for non-retirement needs. 

Take Full Advantage of Company Benefits

You'd be surprised how many employees leave money on the table.  If your employer offers a 401k or other tax-advantaged retirement plan, the first thing you need to know is how to obtain the maximum amount of employer money in your account.  Some employers match your contributions; others make straight up contributions.  Almost all have a limit on how much they will contribute and your goal should be to obtain the most possible.  

Look at your company health insurance plan(s).  Many companies offer a choice.  Generally speaking, the lower the premium, the more you will pay out of pocket.  Run the numbers; do the math.  How often were you at the doctor's last year? How much did it cost?  What is the difference in cost between the high priced plan and the low priced plan?  Cheaper isn't always better,but you don't want to pay more than you need to.

Does your company offer a flexible spending account?  Find out the rules vis-a-vis what you can spend it on, and "use it or lose it".  At least put enough in there for expected checkups not covered by insurance and for your regular medication.  This is money you do not pay taxes on and it is money that in some offices you can spend in January and then spend the rest of the year paying off.  

Learn About Investing

No one cares more about your money than you do.  You are an intelligent woman.  You can learn about basic investment--the advantages and disadvantages of various categories, by reading my blog or any good basic investing book.  You don't have to turn investing into a second job or even a hobby but you should have a good basic idea of what words like "stock" "bond" and "mutual fund" mean and how you can make and lose money.  

Get a Credit Card

Another old saying is that it is easy to borrow money when you don't need it.  Keep an eye on all those credit card applications you get in the mail and apply for one or two that don't charge a  yearly fee.  Keep them in your wallet for emergencies or use then as a convenient means of payment.  DO NOT make minimum payments--unless it is an emergency (like a doctor's visit, not like a hot date for which you NEEDED a new outfit) if you can't afford to pay the bill at the end of the month, you can't afford to buy it.  

Remember that Things Will Have to Be Replaced

The main thing I'm thinking of is your car.  We've been blessed financially and chose to bless  you with your first set of wheels.  Hopefully it will last you at least three more years.  However, it isn't a new car and old cars need to be fixed and eventually replaced.  Put some money aside every month for these expenses so you don't end up with a car payment.  

Make New Friends, But Keep the Old

Remember that Girl Scout song?  It works in life too.  I know you are feeling kind of "tribeless" and it is hard to get used to a world where not everyone is your age and at your stage in life.  Keep your eyes open and a smile on your face and let your beautiful personality shine through.  You'll eventually find a whole new tribe.

Don't Forget We Love You and Know You Will Succeed.

and don't forget that one day we may need your help--yes even with cleaning if you can imagine it!

Love, 

Mom

*Part of Financially Savvy Saturdays on brokeGIRLrich.*