How to Build Wealth After Graduation

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You’ve just graduated college and you’d like to be wealthy someday. Problem is, you have no clue how to make it happen. First, you’re broke and may be drowning in student loans. Second, no matter what the experts might say, it feels like there are tons of fellow grads fighting over a handful of jobs. Third, though you don’t mind hard work, you don’t want wealth to come at the expense of a social life, a family and the chance to do some good in the world. Should you give up the dream and content yourself with an average life?

Not at all. It’s completely possible to become a multimillionaire before you retire. Right now you have an advantage you never will again: youth.

Many young people have no concept of how simple it is to build wealth. Not easy, because hard work and self-discipline are required, but simple. Any intelligent person with an ordinary career trajectory can do it. But now is the time to get started. With every year that passes, your window of opportunity closes a little more. Sounds good, right?

Understanding the Astonishing Power of Compound Interest

If you take a penny and double it every day for a month, how much would you end up with? A hundred dollars? A thousand dollars? How about a million dollars? Not even close. Starting with a single penny, if you double it every day for 31 days, you end up with $21,474,836.48. That’s compound interest. That’s how you get rich. And that’s why, when it comes to wealth building, your age gives you a major advantage.

Starting with your first job out of college, you can try investing 15% off the top. By the time you retire, you’ll be a multimillionaire. Yes, you’ve heard the “pay yourself first” principle before. But you probably don’t realize just how wealthy it can make you. Let’s say you start making an average graduate’s starting income (which, according to The National Association of Colleges and Employers, is $52,569 a year, as of 2016). Assuming you are good at your job and get consistent annual raises of 4%, you’d be making $77,815 a year 10 years from now, and $252,385 in 40 years. Not only will you be making more money, but you will also be able to save more money. If you consistently (and that means every year) deposit 15% of your income into investments, compound interest will begin to accumulate like you wouldn’t believe. Assuming a return of 10% a year, you’d be worth more than $5.4 million when you are ready to retire. (Assuming, of course, that you put this money aside and aren’t spending it on things you shouldn’t be.)

Where Should My Money Go?

First, pay the government because things can get troubling if you don’t. Second, pay yourself. Put the aforementioned 15% of your income in some sort of investment. Third, pay the interest on your debts, such as credit cards, student loans, car loan, etc. Keeping debt low is critical. (Your credit utilization level — the amount of debt you carry in relation to your overall credit — is a major influence on your credit scores. You can find out where yours stand by viewing two of your scores for free on Credit.com.) Fourth, pay for non-critical parts of your life like entertainment, travel and toys.

Don’t succumb to the temptation to pay for prestige. A big part of being able to save the requisite 15% involves not blowing your paycheck on expensive cars, high-dollar meals and trendy couture. But that needn’t mean depriving yourself. Beautiful, comfortable clothes are not cheap, but they don’t have to cost a fortune. You can buy a great pair of slacks for $150 or you can spend 10 times that amount. The difference will be the label on the waistband. The point is this: The best material things in life are affordable. They are not cheap (quality never is), but if you buy them selectively and use them with care, you can enjoy a life as materially rich as Mark Zuckerberg on an income that wouldn’t get him through lunch.

Landing That First Job

Of course, this advice hinges on your finding a decent-paying first job. (To start, you can read these 50 things recent grads can do to score their first job.) Depending on where you’re applying and your prospective industry, you may also want to consider the following ideas during the application process.

  • Forget the standard resume-cover letter program. Instead, write a direct marketing letter that lets your prospective employer know you understand what their problems are and that you have the solutions.
  • Call the office of your prospective future boss and ask for a short, informational interview. This is a great way to get in that locked door and find out a lot of personal and professional information about your prospect.
  • If you feel you might not get the job you are seeking, suggest that you can do a project for the company on a freelance basis, perhaps for free.

Right now, you may think becoming a millionaire is not a laudable goal. You might say money doesn’t matter. Well, it may not matter now, but it will when your kids are applying to colleges or when you’re approaching retirement. Financial independence frees you to live a rich, fulfilling, authentic life. And that’s the true definition of wealth.

This article originally appeared on The Dollar Stretcher.

Image: gradyreese

The post How to Build Wealth After Graduation appeared first on Credit.com.

6 Big Mistakes People Make When Settling Debt

settling-debt

If you can’t pay back a debt you may be able to settle it for less than what is owed. The goal in doing so is pretty straight forward — you want to get the creditor to accept a lower payment amount than the current balance on the loan or account. However, getting there can prove to be a challenging task and there are some mistakes you’ll want to avoid when trying to settle a debt.

1. Having Unrealistic Expectations

You may have heard you can settle a debt for pennies on the dollar, in the 10-25% range. That may be idealistic, so you shouldn’t expect it to go that way.

“While you may be able to negotiate down your debt, it’s important to remember that lenders are typically for-profit businesses accountable to shareholders,” John Schneider of the Debt Free Guys, and Credit.com contributor, said.

2. Overlooking Tax Consequences

Any time a debt is forgiven or settled, the IRS treats the forgiven amount as taxable income, and the creditor will most likely issue you a 1099-C. If you don’t keep this in mind, you may be faced with a surprise when Tax Day comes along.

“You’re not done paying for your debt when you send your settlement check,” Schneider said. “However, the amount of tax you may owe on this income or settlement amount will depend on other assets you have.”

3. Negotiating Too Early

“It seems counter-intuitive, but the more you demonstrate your inability to pay your lender back, the more inclined your lender will be to negotiate,” Schneider said. “Missing a few payments wouldn’t qualify.”

Many credit card companies may not be willing to negotiate with you until you are at least 90 days delinquent. In addition, being premature in the process may refer to the fact that you don’t have a full grasp on your financial situation.

“The ‘too early’ would be that you should have a budget and [know] what is possible before negotiating,” Thomas Duffany, an Accredited Financial Counselor, said. (For more, you can read this guide on tips for negotiating with creditors.)

4. Not Getting Help Negotiating

The person you talk to on the other end of the line at the credit card company or the collections firm is a professional whose skills may be intimidating.

“The person who negotiates for the lender is an expert at negotiating,” Schneider said, so asking for help might be a good option. “If you need to bring in a friend or a colleague more skilled with negotiating to speak on your behalf it may be worth it.” There are also professional organizations that can help negotiate — if that’s the route you choose, consider reading this guide that goes over 14 questions you should be asking a debt settlement company.

“Navigating issues of debt can be stressful, confusing, and frustrating,” Rebecca Wiggins, executive director of the Association for Financial Counseling and Planning Education, said. “It is important that consumers know where to turn and who they can trust to guide them to financial security.” She recommended consumers “look for a trusted professional with reputable credentials and comprehensive training.”

5. Settling for an Amount You Cannot Afford

It’s no good negotiating a settlement if you wind up defaulting on the new agreement, essentially putting you back in the same stressful situation.

“It is essential that consumers have an updated spending plan to understand income, expenses and debt,” Wiggins said. “It will also help to determine how much they can afford to pay toward debt.”

6. Not Getting the Agreement in Writing

Getting a creditor or collection agency to agree to a settlement is only part of the process — once you get them to agree, it’s essential to get the agreement documented in writing. Oral contracts are extremely difficult to enforce, so having a written agreement spelling out the terms of the agreement exactly will help you should you need to enforce the contract in court.

According to Todd Christensen, the director of education at the National Financial Education Center in Boise, Idaho, said it’s important that “… anyone setting a debt should get in writing that the creditor will not sell (send to collections) any remaining amount not paid.” You’ll also want to outline the other terms of your agreement in writing.

As you continue to work on paying your debts, it’s a good idea to monitor the effects it’s having on your credit. You can view two of your credit scores for free, updated every 14 days, on Credit.com.

Image: Petar Chernaev

The post 6 Big Mistakes People Make When Settling Debt appeared first on Credit.com.