Some people always leave stuff for tomorrow.
Procrastination is okay when you're talking about cleaning up your bedroom, but when it comes to personal finance, delaying action can be your undoing. There are certain key financial decisions that you need to make today — otherwise you may have a hard time catching up tomorrow.
Don't compromise your financial future — here are seven money moves for today that you'll regret you didn't make in 20 years.
1. Buy Life Insurance
If you plan to become a hermit, vow to never have a partner or spouse, or avoid having dependents by any means necessary, then you may skip this section. For all others, please read along.
Right now is the youngest that you'll ever be, and the lowest that you'll ever be charged for life insurance. That's a fact. When your entire family depends on your income to survive, you need to plan to provide for them in case of your absence. If you're the sole breadwinner, how do you expect your dependents to cover the remaining balance of the mortgage, for example?
If you're planning to have a family or take care of your parents down the road, buying life insurance when you're single and healthy in your 20s or 30s allows you to effectively lock in a low rate. If you wait 20 years to purchase life insurance, the cost can become prohibitively expensive — if you can qualify for plan coverage at all.
2. Negotiate Your First Salary
According to a report from the National Association of Colleges and Employers, class of 2014 college graduates at the bachelor's degree level have an average starting salary of $48,127. At the lower end of the salary range, liberal arts and humanities majors have an average starting salary of $38,604, and at the higher end, engineering majors have an average starting salary of $64,891.
If you're thinking that these salaries sound too low, you're right. It turns out that more than 60% of Millennials don't negotiate salary when receiving their first job offers. Recent graduates are leaving money on the table. A survey of 700 employers reveals that three-quarters of employers typically have room to increase their salary offers by 5% to 10% during negotiations.
This means that the average starting salary of a liberal arts and humanities major could potentially be bumped up to between $40,534 and $42,464, if only the job applicant were willing to negotiate. To show you how important that initial salary bump is, let's imagine that you were to take those increases of $1,930 (5% raise) and $3,860 (10% raise) and invest them for 20 years in an investment account with a 5% rate of return compounded annually. At the end of 20 years, you would be approximately $65,532.79 and $131,062.87 richer, respectively.
3. Start a Retirement Account
The same compounding example can be applied to your nest egg. You need to start saving for retirement today, or you'll be kicking yourself for not doing so 20 years from now.
More than one third of Americans have less than $1,000 in retirement accounts. This is a scary number that becomes even scarier when you realize that the old target of a $1 million nest egg is no longer enough. According to calculations from the Social Security Administration, 25% of Americans aged 65 or older will live past age 90, and 10% will live past age 95. Given the longer U.S. life expectancy, a 4% annual withdrawal would fully deplete a $1 million retirement account in 25 years (age 90, assuming a retirement age of 65).
But it's not just a matter of saving for the sake of saving. To maximize your potential nest egg, you need to make these smart money moves:
4. Invest in Stocks
Famous investor Peter Lynch put it best, "Gentlemen who prefer bonds don't know what they are missing." When you have a long term time frame for investing, stocks will outperform other types of securities.
5. Minimize Investment Fees
By investing in funds with low expense ratios, such as index funds, you get more bang out of your retirement buck.
6. Take Advantage of Employer Matches
The average U.S. worker foregoes $1,336 per year or an extra 2.4% in retirement savings. This is free money that could be in your retirement account, but only if you were meet the matching requirements of your employer's retirement plan. Find out how to qualify for your employer match.
7. Quit Smoking
Smoking is one of the single worst thing that you can do to your body… and your wallet.
- In 2015, the American Cancer Society estimates that you spend $35 in health-related costs per pack of cigarettes.
- According to a study from Wallethub, smoking costs Americans between $1 and $2 million over a lifetime, depending on your home state.
- Under the Affordable Care Act, insurance companies can't charge more for health status. However, they can charge up to 50% more for smoking status. This means that a smoker would pay up to $6,000 for the same annual coverage that would cost just $3,000 to a non-smoker.
- Non-smokers receive discounts under most car, renters, and home insurance plans.
- Smokers pay about three times as much for life insurance than nonsmokers.
- Used cars polluted with secondhand smoke have a resale value about 7% to 9% lower than comparable cars without such pollution.
If you quit smoking now:
- In 10 years your risk of dying from lung cancer would be about 50% less than if you were to continue smoking, and
- In 15 years, your risk of coronary heart disease would be the same as a non-smoker.