New College Grads: This One Move Will Set You Up to Retire Rich

When you are a new college grad, you have to make a ton of financial decisions. You'll need to decide what credit card to get once you're fully an adult and can stop using your student card. You'll need to think about where to live, how much to pay for your housing costs, what car to buy, and what job to take.

But, while all of these decisions are going to affect your life in big ways, there's one choice that stands apart from the others. If you can do just one simple thing when you become a new grad, you can set yourself on the path to financial security in your later years. Here's what it is.

Do this one simple thing as a college grad to build a secure future

After you have graduated from college, there's one move you need to make that is going to have a huge impact on your future. You need to set up automatic investments and savings transfers.

See, you aren't yet used to living on your new salary as a new grad. Your lifestyle has presumably not yet expanded to fit your new income since you're just getting started in your new career. Since lifestyle creep hasn't happened yet, you probably don't have a bunch of financial commitments you have to fulfill and you aren't yet used to a certain standard of living that your post-degree salary can provide you with.

Before you become used to living on your entire salary at your adult job after graduation, you can arrange to have some of that money go automatically towards your retirement savings. You can have the funds put into your 401(k) if your employer offers one. If not, you can open a retirement account with a brokerage firm and arrange an automated transfer of money to it on payday. You can also arrange to have some money moved into a high-yield savings account if you want to save for other things besides retirement.

Ideally, you should save about 20% of your income, so set up automatic transfers of that amount of money after graduation before you even get a single paycheck at your post-degree career.

Why will setting up automatic transfers as a new grad make such a difference?

Following this advice can be life-changing for a few key reasons.

First, if you make saving a habit right away and immediately devote income to it, you won't ever get into the habit of using that income for anything else. It just won't be there for you to meet your short-term needs, so you won't expect it to and you'll arrange your financial life around not having it there.

Second, if you set up automated transfers of your money to the right place, odds are good you're going to stick with the status quo. It will be a lot of hassle to turn off those automatic contributions you've set up and you're less likely to go to the trouble to do that when you know deep down investing for your future is the right move.

Third, and perhaps most importantly, if you start investing as a new college grad, you are going to have time and compound interest working for you. Over decades, your money can earn returns that are reinvested and earn returns of their own. Since there are so many years for this to happen, you can turn a pretty small amount of money into a huge sum.

For example, if you start investing just $250 a month at age 21 when you graduate from college, by the time you hit age 65 and have been investing for 44 years, you would have a nest egg of close to $2 million, assuming you earned a 10% average annual return. But, if you waited until age 30, you'd have less than half that amount, ending up with $813,101.21.

If you want to be a wealthy retiree with minimal effort and you're a new college grad, take this advice and automate your investment contributions right now. Even if you can only contribute $100 or $10, start investing in something. You'll be very glad you did when you've seen your wealth grow virtually effortlessly over time.