Self-made millionaire tells new grads, ‘Do this for as long as you can, and you’ll be a multimillionaire’ |
As someone in my 30s, it’s tough to read tips for new grads without cringing. Too often, what now seems like obvious, common-sense advice is something that I blissfully ignored in my 20s.
Every once in a while, though, I get a little jolt when I realize that a younger version of me managed to do something right.
That’s how I felt when I read my colleague Cheyenne Devon's recent writeup from a chat with Ramit Sethi, a self-made millionaire and author of “I Will Teach You to Be Rich.” In it, he offers his No. 1 money tip for new grads. “You’ve got to invest 10% of your salary every year,” Sethi says. “And at the end of the year, increase that by 1%. Do this for as long as you can and you will be a multimillionaire.”
Hey — I did that! Well, more or less. I didn’t exactly launch a career the second I graduated. I spent a few months making ends meet as a cater-waiter while crashing on friends’ couches. Even if I had money to spare, I wouldn’t have known how to invest it.
Luckily, I landed an internship at a financial magazine with a cubicle next to the editor who helped choose mutual funds for the company 401(k). Soon, 10% of my $12-an-hour salary went into the plan.
The key for new grads isn’t necessarily a particular percentage: It’s starting early and staying consistent. You’ll see a lot of quotes touting the “magic” of compounding interest or calling it the eighth wonder of the world. Really, it’s just math.
You can use this calculator to see just how powerfully that math works in your favor if you start early.
Say you started contributing $300 a month to a workplace retirement account at age 22 and invested for the next 45 years. If your portfolio earned an annualized return of 7%, you’d end up with a balance north of $1.1 million.
If you invested the same amount and earned the same return, but instead started at age 30, you’d end up with about $632,000. If you're graduating this spring, do yourself a favor and get started soon. Your future self will thank you. |
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Money Tip of the Week: Invest with a triple tax advantage
If you’re in a high-deductible health plan, you have access to what many financial pros consider the most powerful retirement savings vehicle out there.
Most people use health savings accounts for tax-free spending on qualified medical expenses like X-rays or medication. You can also invest through these funds, just like a 401(k) or individual retirement account. Only about 13% of people invest the funds in their HSAs, according to recent data from the Employee Benefit Research Institute. Most people use the HSA money to pay for medical expenses throughout the year.
But if your health-care costs are low – or if you’re willing to pay for them out of pocket – an HSA can be a more tax-advantageous retirement account than a 401(k) or IRA, experts note. That’s because it comes with a unique triple tax benefit.
Tax-deductible contributions: Funds contributed to your HSA are deductible from your taxable income, the same way they are if you contribute to a traditional 401(k) or IRA.
Tax-free withdrawals for qualified health-care expenses: Withdrawals from an HSA to pay for qualified medical expenses, such as lab fees and nursing services, are not taxed. Withdrawals for non-qualified expenses before age 65 incur income tax and a 20% penalty. Tax-deferred earnings: Gains from HSA investments are not taxed as they accrue, and withdrawals used for qualified medical expenses remain tax-free. However, withdrawals for non-qualified expenses before age 65 are subject to both income tax and a 20% penalty. In short, money you put in doesn’t get taxed, it grows tax-free, and as long as you spend it on medical expenses, you can withdraw it without owing a dime.
That last part may seem like a big catch, but here’s the thing: Just about everyone has major medical bills in retirement. In 2023, Fidelity found that the average couple would need around $315,000 to cover health-care costs in retirement. Think what that might be 40 years from now.
What’s more, there’s no statute of limitations on medical expenses. If you have $20,000 of health-care receipts dating back 20 years, you can take that money out of your HSA, tax-free. |
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Next Gen Investing: Founder and CEO Mike Novogratz on the best way to learn about crypto |
Even some bulls say to start small if you’re interested in investing in cryptocurrency.
Billionaire Mike Novogratz, founder and CEO of Galaxy Digital, a digital asset and blockchain company, recommended starting with 2% to 5% of your overall portfolio. You could even aim for around 1%, he said during CNBC’s Financial Advisor Summit last week. If you want to learn about crypto, you should at least “get off zero,” Novogratz said, because doing so will get you engaged.
“Once you have a little bit of an allocation, you start following the story,” he said. “You learn about things by putting a little money on the line. Then you pay attention to the article, you pay attention to the interview.”
Novogratz is an industry insider, so it makes sense for him to encourage as many people as possible to learn more about and invest in crypto. That said, other financial experts recommend similar parameters. “I’d say 1% on the more conservative side, and no more than 5% of your total portfolio if you’re a growth-focused investor,” Brian Vendig, president of MJP Wealth Advisors in Westport, Connecticut, previously told CNBC Make It.
The reasoning comes down to risk. Unlike stocks and bonds, cryptocurrencies don’t derive their value from underlying assets. Their prices are highly volatile and only worth as much as investors are willing to pay for them on any given day. In general, you should only invest as much in crypto as you’re willing to lose.
It’s worth asking yourself how you envision a crypto holding helping you reach your specific financial goals.
“If an investor can answer that appropriately, then you can actually figure out the sizing you should have,” Vendig says. “Do you want to dip your toe into this asset class? Or is that asset class not even rational for you as an investor?” |
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Worth the Money: $95 water bottle bag |
It’s a bit of a stretch to say I’m glad I spent nearly $100 on a bag to carry my water bottle. But my Dagne Dover Sloan water bottle sling has at least lived up to the hype I built up for it in my head.
I bought it to bring to Coachella in April and on long dog walks thereafter, and it was and has been a godsend for both. It holds the 32-oz. Nalgene water bottle I separately purchased, along with a plethora of other small necessities — my phone, keys, some cash or cards, hand wipes, headphones and more — all while keeping me hands-free and cooler than wearing a backpack. — Kamaron McNair, Money Reporter
CNBC Make It independently determines what we cover and recommend in the “Worth the Money” section. Opinions, analyses, reviews, or recommendations have not been reviewed, approved, or otherwise endorsed by any third party. |
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