"I am very lucky to be in the position I'm in...What can I do now to set myself up for the future?" Recent college grad, first time making money - how to set myself up for the future?

Hey Money Minder,

My name is Alex and I just graduated from college at 22. Here’s the deal with my money:

I snagged a job making $85,000 a year, so my take-home pay is around $5200 monthly.
Lucky me, I still live at home for free. No car payment, no student loans.
I’ve got $6k saved up so far (from my first paycheck and signing bonus. I was broke after college).
I just started putting 5% of my salary into my 401(k) at work (feeling like I should bump that up, how much though?). My employer won’t match anything for the first year.

I know I’ve got it good with not many bills to pay, so I want to make the most of it.

What’s my next best move for the future?

How much should I be stashing away for retirement? And what’s the deal with saving and investing?

Later,

Alex

Response from THE MONEY MINDER:

Hello There,

Congratulations on your recent graduation and landing your first job! You are in a fantastic position financially with no major expenses at the moment. It’s great that you are already thinking about setting yourself up for the future.

Given your current financial situation, here are some practical steps you can take to maximize your savings and investment potential. Firstly, since you have no immediate financial burdens, it’s wise to focus on building a strong financial foundation. Consider increasing your 401(k) contribution beyond 5% of your salary, especially since your employer does not match contributions in the first year. You could aim for a contribution rate that allows you to reach the annual maximum allowed by the IRS, which is $19,500 for 2021.

In addition to your retirement account, it’s also beneficial to start building an emergency fund. You already have a good start with $6,000 in savings, but aiming for 3-6 months’ worth of expenses would provide a solid safety net. Since you have no student loans or rent to worry about, consider setting up automated transfers from your paycheck to gradually increase your savings.

When it comes to investing, consider a diversified approach. Explore low-cost index funds or exchange-traded funds (ETFs) that match your risk tolerance and investment goals. If you’re new to investing, consider speaking with a financial advisor who can provide personalized guidance based on your unique situation and goals.

Overall, continue to live below your means, save diligently, and invest wisely. By taking these steps early on, you are setting yourself up for long-term financial success. All the best from THE MONEY MINDER as you navigate your financial journey!