The following post is an excerpt from an article written by Anthony Sills entitled Everything You Need to Know About Investing You Learned Playing Monopoly® which was geared towards recent college graduates.

c

Rich Uncle Pennybags a.ka. Mr. Monopoly

Now that some of the euphoria surrounding graduation has worn off it may seem like ‘reality’ is starting to set in.  And the reality is no one taught you what to do with all that money you’ll be making out in the ‘real world’.  Well, fear not because everything you need to know to manage your money, and even become a successful investor, you learned a long time ago playing Monopoly!

So you’ve graduated and maybe you even have a job.  What now?  If you’re like most of us, you were always told to go to school, get a job, work hard, and save your money but no one ever told you what to do with the money.  That’s okay.  Everything you need to know about managing money you’ve know since you were a kid.  Avoid being cash poor, invest your money wisely, and be prepared for the unexpected.  It’s all about capitalism. Efficient use of one’s money makes for good capitalism and all that requires is some basic math.

WHY IT’S IMPORTANT TO START IN YOUR TWENTIES

Just like in Monopoly, you need to start the game focused and take control early.  After all, you don’t want to just pass the time, you’re trying to win!

First thing you need to do is figure out your goals.  What do you want out of life?  Whether you’re absolutely certain, or don’t have a clue what you want, the important thing is to start thinking about it.  That way you can develop a plan that will help you get there.  There’s no time like your twenties to start putting your money to work for you so that you can achieve your financial goals throughout your life. Developing good spending and saving habits, and learning to budget and invest during your twenties, can help you prevent needless debt, and allow you to put away money for the things that are important to you.  Not to mention you can take advantage of the power of compounding (beginning the game focused and taking control early) to start building a nice nest egg.

In fact, compounding of earnings is so powerful that those who start saving for retirement in their twenties can amass large nest eggs with relatively little effort, as long as they invest regularly.

For an example of the power of compounding, take a 25-year-old who invests $2,000 a year for eight years and never invests an additional dollar after the age of 33. He or she will earn more by the age of 65 than a 35-year-old who invests $2000 a year for 32 years, even though the 35-year-old invests four times as much.

Or consider this: Someone who puts $4,000 a year into retirement accounts starting at 22 can have $1 million by age 62, assuming 8% average annual returns.   Wait 10 years to start contributing, and you’d have to put in more than twice as much — $8,800 a year — to reach the same goal.

Think about it.

Another benefit to starting early is that you want to invest as much as you can.  Take advantage of employer contributions and matches to retirement accounts.  Start to study investments and how money works.  At least learn enough to know what’s going on with your money and the people that handle it (investment advisors, accountants, banks, mortgage companies, etc.).  If your employer offers a 401k or other retirement plan, sign up for it and contribute as much as you can. If not, start contributing to a traditional or Roth individual retirement account. Aim to put aside 10% to 15% of your gross pay. Contributing every dime you can now will give you flexibility when you’re older, either to retire early or to cut back your contributions so you can cover other expenses (like future children’s college educations) without derailing your retirement plans.

Expect the Unexpected

Just like in Monopoly, even a well-planned strategy is still subject to Murphy’s Law.  So be prepared.  There’s no such thing as a good time for a bad thing to happen. That’s why it’s important to set aside funds for unexpected expenses that may result from an accident, temporary unemployment or major health related expenses.

You should be saving as much as you can, and optimally have three to six months living expenses (rent, transportation, bills, etc) earning interest somewhere relatively accessible in case of emergency.  Start small. Add to your reserve when you get a raise—or when you receive a tax refund, a gift of cash or a rebate.

Get health insurance. You’re one accident or illness away from financial disaster if you don’t have coverage. If your employer doesn’t offer insurance, try to buy an individual policy. Opting for a high deductible can keep the monthly premium down but still offer you protection from catastrophic medical bills.

In future editions we will discuss Why No One Gets Rich Renting, Income Taxes, Investment Strategies, Real Estate Investing, Mortgages, Winning A Zero-Sum Game, and Bankruptcy.

Monopoly® and Rich Uncle Pennybags (a.ka. Mr. Monopoly and Milburn Pennybags) are registered trademarks of Hasbro, Inc. All rights reserved.

About the Author

Anthony Sills, M.B.A. is a veteran of the financial services industry having formerly traded FOREX from the Atlanta Financial Center and worked for stock advisory services, brokerages, Fortune 100 companies, and national banks including Bank of America and Washington Mutual.  Mr. Sills is currently a licensed loan officer and freelance writer. He is considered a FHA and FTHB expert as well as an authority on real estate investing.  You can reach him at anthony@bettercredit101.com.

Tags: 401k, capitalism, compound interest, Everything You Need to Know About Investing You Learned Playing Monopoly®, financial goals, investor, Monopoly, Murphy’s Law, recent college graduate, retirement, Roth