As a 24 year old financial services professional, it can be extremely challenging having discussions with 20-somethings about the importance of planning for their future financial security. For the majority of young adults, it’s great to be young, have a little money in your pocket, and not have much responsibility.
However, people in their 20’s sometimes forget one important thing: time waits for no one! In the blink of an eye you’ll be older and may have a family and a million different things going on in your life. So when exactly will you have time (or be willing to make time) to craft a solid approach to wealth accumulation and preservation?
Your 20’s are the prime time to begin thinking about a financial security plan because waiting only makes it more challenging to accomplish. Of course, there is no “one-size fits all” type of approach, but I can assure you that getting started today will only help you in the future. Here are a few tips that can help young professionals get started.
Create a budget.
How much do you earn? How much do you spend? How much are your bills each month? How much do you save/invest? Try your best to stick to this budget each month and have someone hold you accountable when you do not stick to it.
Pay off credit card debt.
We all know that credit card companies make money off the interest they charge on your account. Here are a couple of tips: 1) Stop spending money that you don’t have; 2) Consider paying off the card with the highest interest rate; 3) If possible, pay more than the minimum payment each month; 4) Whenever possible, pay with cash instead of credit cards.
Build an emergency fund.
Make sure to have between 3-6 months worth of living expenses saved at all times. This may be a challenge, but you will not be upset with yourself for saving money when an actual emergency pops up.
Determine personal insurance needs.
Consider your situation, and see if life insurance and disability income insurance provided by your employer will sufficiently cover your needs. If need be, consider owning personal insurance outside of what is offered through your job. Some employers pay for insurance benefits, but many don’t provide employees with as much protection as they’d like. And if you change jobs – or lose your job – you will lose those employer-provided benefits, because you don’t “own’ them. Personal policies can help ensure that you’re protected, no matter where you work.
Begin saving for retirement.
Take advantage of your employer-sponsored plans like a 401(k) or 403(b) because these plans allow you to invest monies tax-deferred. A nice advantage of these plans is that they take money out of your check before you get paid. There are also ways to save for retirement outside of an employer-sponsored plan. Consider opening an individual retirement account (IRA) or perhaps a brokerage account. If you’re considering saving for retirement outside of or in addition to your employer sponsored plan consult with a financial professional as you’ll need to be aware of contribution limits, tax treatment, and how the accounts work.
Will your savings last as long as you hope it will? Use a retirement savings calculator like the one offered by Northwestern Mutual to reveal your progress and determine if your plans will fulfill your dreams.
I challenge you to ask some of your elder family members what they wish they would have done with their money when they were in their 20s. I wouldn’t be surprised if they said something along the lines of, “I wish I would have saved more and started investing more.”
I’ve personally done this exercise with family and friends. If you’re interested in a lifetime of financial security, I recommend that you do it too.
Jasper Smith is a Financial Representative of The Northwestern Mutual Life Insurance Company, Milwaukee, WI (Northwestern Mutual). Working out of the Walnut Creek, CA office, Jasper provides, for individuals and small business owners, expert guidance and innovative insurance and investment solutions for a variety of financial needs and goals. For more information on all the services Jasper provides log on to www.nmfn.com/jaspersmith. Securities offered through Northwestern Mutual Investment Services, LLC a subsidiary of Northwestern Mutual.
Very timely advice during this period of financial stress. It is critical that 20-somethings understand that this is an opportunity for them to plant the seeds of wealth. If they can just see beyond the bling and the hype that ties our self-worth to the cost of our cars and the size of our TV's to recognize that owning your life is far more important than renting your lifestyle. Following your advice 20-somethings can own their lives in their 30's because the markets are down, money is cheap and leverage is the power play to wealth building.-DD