As 18, 19, 20-year-old college students, what preoccupies our minds the most? Classes, clubs, friends, dating, parties etc. Money is also something that I find is on my mind quite a bit. There’s no denying that we all know the struggle of being broke. It’s an added layer of stress to our already busy lives that is not necessary. That’s precisely why I want to talk about it. I’m by no means a financial expert and don’t have much authority on the subject, however, there may be something to learn from my own experiences.
Last December, I opened an Independent Retirement Account (IRA). I’m 19. Whenever I tell people I’ve opened a retirement account they get this funny look on their face that tells me they think I’m utterly insane. Once they hear what I have to say, they nod their heads and tell me they get it. I can guarantee you’re sitting here thinking the same thing, but I hope at the end of this you, too, will understand.
What is an IRA?
An IRA is “an investing tool used by individuals to earn and earmark funds for retirement savings.” Essentially, it’s you putting a little money away each month so you can retire and live out the rest of your days traveling the world. There are four different kinds of accounts: Traditional IRA, Roth IRA, Simple IRA and Simplified Employee Pension IRA. I’m not going to get into each one because that can be a little tedious. That’s a question for your future financial advisor. I personally opened a Roth IRA because that type of account was best for my personal financial goals. It’s important that you go over your situation with a professional so as to get the best fit for you.
How does it work?
Each year you put money into this account and each year it grows. There is a yearly limit of $5,500 but as college students, we most likely wouldn’t be hitting anywhere near this. I personally contribute a set amount of money to this account every month. It comes directly out of my bank account on the 15 of every month and is just like any other bill that I incorporate into my budget.
There are fees which usually entail “fund management fees, advisory fees and commissions” among others. This may seem intimidating but no need to stress. This means you’ll be paying your financial advisor a small percentage for handling your account and the company that holds your money. There may be other fees as well but those are details you would have to work out with your advisor. Fees are unavoidable so it’s important that you be aware of this going in.
Finding a financial advisor.
I cannot stress enough how important it is that you find the right financial advisor for you. You hear horror stories about advisors taking advantage of their clients and it can be unsettling. Fortunately, there are a few tricks that will help prevent this from happening to you.
Call a few different companies. Talk to several financial advisors. Meet with them, discuss your plans. There’s no harm in shopping around. If you’re going to be putting your money away you’re going to want to give it to someone you trust.
In your hunt for an advisor, it’s necessary to bear in mind that you should feel absolutely comfortable with whomever you choose. At no point should you feel pressured to do anything or feel like your voice isn’t being heard. A good financial advisor will explain everything that is going to happen with your money. They will be ready to answer any and all of your questions. They should be willing and eager to explain unfamiliar terms and help you understand exactly what goes down with your investment. It’s important for them to teach you about the process rather than simply tell you what to do.
For most college students, parents still play a huge role in the financial side of things. If that’s the case for you, make sure you talk to them before you sign any documents. Your parents should have the opportunity to meet with the advisor you choose so they can ensure you’re not going to put yourself in a bad situation. It’s always better to have a second opinion.
What are the benefits?
Okay so now you know how to get there but the real question: why should you make this kind of investment? This type of account has numerous benefits that should certainly be taken advantage of. One of the greatest things about an IRA is that they offer tax-free growth which means that these accounts allow you to “earn interest tax-free” which then means more money at the end of the day for you to retire the way you want.
As college students, sometimes we may spend a little more than we should and just swipe the card one more time. It can be hard to save especially when you have access to the money. With IRA’s, you can’t touch your money, not until you’re retired. If you try to withdraw the money you’ve been saving, you will be so heavily penalized and would lose money. Choosing to open an IRA hold you accountable to not touch your savings so that you can actually have a good retirement.
Another reason you may want to consider opening one of these accounts is the fact that you simply won’t have to worry down the line. The feeling of being broke is probably the worst feeling in the world and I know that I’m not the only one. I’d like to work hard and then be able to kick back on a beach in Costa Rica.
The younger you start, the more money you’ll have later. It takes so little to contribute now and it will grow immensely. If you wait until you’re 40 years old to start saving, you won’t have anywhere near as much money. Being younger also allows you to invest in a riskier account because you have time to bounce back should your stocks and bonds plummet. Riskier accounts typically have higher long-term yields. And we like that.
Making investments is terrifying because it seems like another language, however, these kinds of choices came with the territory of adulthood. There are a number of benefits that you shouldn’t let yourself miss out on because of the unknown. Ask the questions and get the answers so you, too, can be on your way to a happy retirement.
All GIFs courtesy of Giphy.