- Amy Williams 513.534.6791
Advice to the Class of 2007: Save More, Spend Less
For graduates of the Class of 2007, their first job can mean more than the beginning of their professional career. It also can mark the first step toward a sound financial future.
“Many young professionals view the financial value of their first job in terms of their paycheck,” said Jaleigh White, director of Wealth Planning for Fifth Third Private Bank. “They put off financial planning for a few years until they begin to consider marriage or home ownership. However, young people should look for ways to begin saving for their future as soon as they begin working.”
Today’s 25- to 34-year-olds are spending more and saving less. White advises young professionals to become familiar with their current financial situation and determine where they want to be in the future. They should then begin setting realistic goals to help them move toward financial security.
“Young professionals can start saving for the future by prioritizing their discretionary spending,” said White. “Start with small changes, such as saying goodbye to trendy coffees and buying generic medicines and other drugstore items. It’s important to learn how to make the best use of spare cash.”
In addition to controlling spending, young professionals should develop a plan to get out of debt. White advises that debts be listed in order of interest rate, paying off the expensive debt on credit cards first but, most importantly, protecting their credit score by paying bills on time. Student loans do have some advantages because the interest may be considered a deductible at tax time.
Developing a savings plan for major purchases can help avoid using credit cards and incurring more expensive debt. Buying a house can be one of the most beneficial purchases a young professional can make. In addition to building equity, the mortgage interest may also be tax deductible.
No matter how complete the plan, emergencies always can occur. White advises young professionals to establish an emergency fund that could cover three to six months of expenses. They also should consider disability coverage and become familiar with their life insurance and property/casualty insurance coverage to determine how well they can weather a financial crisis.
When considering a job opportunity, White recommends young people look beyond their paycheck and also consider the firm’s benefits and retirement plans. “They should become familiar with the health care and insurance options, as well as any health savings plans or flexible spending accounts which may be available,” she says. “Also, they should look for ways to maximize their employer retirement plans, such as 401(k), stock purchase, and non-qualified deferred compensation plans.”
These choices may lead young professionals to determining a personal investment philosophy that will guide them now and in the future. White advises they employ the following guidelines to help them begin saving for the future:
- Consolidate investments with one provider who offers a wide array of investment options.
- Properly define the level of risk that is most comfortable.
- Favor consistency of performance over short-term performance.
- Don’t assume past performance will continue.
- Diversify investments to reduce risk, but don’t diversify your advisors.
- Avoid market timing, because it can increase the chances for decreased returns or missed opportunities.
- Don’t assume Social Security will be available at retirement.
For example, a 25-year-old saving just $25 a week in an IRA or 401(k) plan for the next 10 years can grow upwards of $18,294 with interest and compounding. At age 35, if he or she would stop investing their $25 and leave those saved funds untouched until age 65 without any additional contributions, they may grow to $184,092 assuming an annualized 8 percent rate of return. Conversely, if someone at age 45 begins contributing $25 a week into an IRA or 401(k) plan for the next 20 years until they retire at age 65, those funds will grow to around $58,901 assuming an annualized 8 percent rate of return.
“Why the difference?” asks White. “The younger you start saving, the more time you have for interest and compounding to work in your favor.
“Adopting a personal investment philosophy that fits an individual’s style can make it easier for young professionals to begin saving from the time they enter the marketplace,” she added. ”It’s important to realize that the future is now when it comes to creating financial security.”
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $101 billion in assets, operates 18 affiliates with 1,171 full-service Banking Centers, including 105 Bank Mart locations open seven days a week inside select grocery stores and 2,137 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania and Missouri. Fifth Third operates five main businesses: Commercial Banking, Branch Banking, Consumer Lending, Investment Advisors and Fifth Third Processing Solutions. Fifth Third is among the largest money managers in the Midwest and, as of June 30, 2007, has $232 billion in assets under care, of which it managed $34 billion for individuals, corporations and not-for-profit organizations. Investor information and press releases can be viewed at www.53.com. Fifth Third’s common stock is traded through the NASDAQ® National Global Select Market System under the symbol “FITB.”