How to convince a college grad to start investing now

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Q. My son is graduating from college and he has a job lined up. He says he can’t afford to contribute to the 401(k) plan but I think he has to, especially to get the matching funds. Any suggestions on how I can get him to start?
— Dad

A. The lesson you want to teach your son is one of the most important ones he will ever learn.

It’s terrific that he has a job, and even better that it’s a job that offers the benefits of a 401(k) plan.

It’s easy to find reasons to put off investing for the future, especially for younger people. But the choice to “pay yourself first” will keep paying dividends decades in the future.

“The earlier one starts saving and investing, the better off they will be financially because of how they are starting off their working lives with good financial habits,” said Michael Cocco, a certified financial planner with Beacon Wealth Partners/AXA Advisors in Nutley. “Couple that with the availability of an employer match if you contribute to your 401(k), and it is a no brainer.”

He said you never want to leave this “free” money on the table, so your son should be sure to enroll in that 401(k) at least enough to get the maximum company match.

Even if he feels cash strapped by doing so, his future self will thank him, Cocco said.

“401(k) contributions come out of your paycheck before it even hits your bank account, so you will be forced to live on what is leftover in your paycheck, and that is a good thing as it becomes a method of `forced budgeting’ and by doing this, you are truly paying yourself first,” he said.

So how to convince your son?

Start with some online calculators to show how funds invested today will grow over time. Run the numbers several times. Let’s say he wants to have $1 million at age 65. To reach that amount, if he starts saving at age 25, he needs to set aside nearly $400 a month (including employer match funds). If he waits until age 35, he’s have to save $820 a month, and if he waits until age 45, he’d have to set aside more than $1,900 per month.

That display alone should be convincing.

Also, you can remind him that saving to a 401(k) will lower his taxable income today – something that should help with his cash flow.

You can also show him your investments as an example. Show how much you saved and when, and how that positively or negatively impacted your current retirement nest egg.

And finally, you can show him this story. Good luck!

Email your questions to moc.p1558507054leHye1558507054noMJN1558507054@ksA1558507054.

This story was originally published on April 29, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.