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Congratulations! You have graduated college and landed a great job. You studied hard and it paid off, to the tune of $50k a year in salary. (Statistics taken from www.engineersalary.com). So how can anyone making fifty thousand dollars a year screw things up? Oh...let me count the ways!
How did you pay for college? Lately, I am encountering more and more college graduates with 100, 125 or even $150,000 dollars in debt from attending college. I must admit....I find this preposterous. I can see this kind of debt for an MBA or an M.D. as your future earning potential will allow for the debt to be paid off. You might be making a great starting salary...but you will also find yourself with a lot less money than you think. After a real income tax rate of 18-20% You are already down to 40k. Oh...don't forget your loans! With average interest rates at 6%, the loan payment could easily be 40% of your take home pay. Suddenly all you have left to live on is $24,000. It can be done......but most likely you are forgetting something!
Mistake #3: Talking about leaving money on the table, according to www.zerohedge.com the average retirement savings contribution rate for workers in their 20's is 5.65%. The more depressing statistic is, however, according to the BLS, only 69% of workers with access to a 401k plan actively contribute. Contributing to a 401k reduces your taxable income by the amount put in. This is a guaranteed return of 18-20% in the first year. (based on not paying taxes on that amount) In addition, If your company offers a match and you don't participate, you are leaving FREE money on the table. for example, at a previous employer I had a 50% match on the first 4% of my salary I put in. Doing some simple math, by contributing 4% of 50k a year the average employee would have an extra $1,000 dollars deposited into their 401k. 1,000 at 8% interest over 40 years?....= $315,000!, ( interest compounded monthly and amount deposited monthly) Well, after this joyride....we couldn't possibly blow it any more, could we?
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Mistake #5: Well its not like I spent money I did not have. Right? According to Time.com, More than 20% of individuals in their 20's overspent their income by more than $100. That’s every single month. And since they haven’t built up their credit histories yet, it’s a safe bet that these young adults are paying relatively high interest rates on the resulting credit card debt.
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