Personal finance goals look a little different when you're in your 20s and 30s. You might be navigating the challenges of paying off student-loan debt, establishing yourself in a new career, buying a home or even starting a family.
You may think that you have all the time in the world to set up a financial strategy, but time goes by more quickly than you expect. Working with a financial professional may help get you out of debt faster, save for important goals and give you a head start on retirement.
So where do you begin? Here are six moves to consider to jump-start your financial future.
6 Tips for Investing in Your 20s and 30s
1. Take Control of Your Health
Wait, what? It may seem counterintuitive, but your health plays a huge part in your financial well-being. If you are not currently covered by health insurance, you should consider making it a financial priority. Even if you are generally healthy, a car accident or unexpected illness can set you back financially.
Research conducted by the Urban Institute shows that young Americans (age 18–24) are the age group most likely to go without health insurance at 11.3%, or 3.6 million Americans.
If you are under the age of 26, you may be able to get coverage through a parent or a guardian. If you are not eligible for an employer-sponsored health insurance plan or your parents' insurance, you can shop for health insurance plans on the Affordable Care Act (ACA) federal or state insurance exchanges.
Please note that, unless you qualify for a Special Enrollment Period, you will have to wait for the Open Enrollment Period in November to enroll in health coverage. Visit www.healthcare.gov to learn more.
2. Negotiate Your Salary
One of the savviest financial plays you can make early in your career is to learn how to negotiate a salary. Since your employers will base raises and job offers on your previous salary, you can improve your lifetime wealth dramatically by negotiating for a higher salary early on.
Here are some negotiating tips for boosting your salary:
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Do not be afraid to ask for a raise or salary bump.
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Demonstrate why you are worth more money.
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Do your homework so you understand the market for your skills.
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Ask for written goals and set a future date for a review if your request is initially declined.
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Consider salary alternatives, such as performance bonuses and noncash perks, that can improve your lifestyle.
3. Figure Out Your Financial Goals
Whatever your personal goals are, start preparing for them now. A few common financial goals for Millennials and Gen Z include:
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Additional education: College, graduate school and advanced certificate programs can open doors and boost your career prospects. However, tuition and fees for public, four-year colleges have been increasing by an average 3.21% for the past three years. Living expenses and little or no income (depending on your employment status as a student) will also raise the cost of education. Preparing now can help ensure a strategy to balance your college savings and loan needs.
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A house: For most people, a house will be the largest purchase they ever make. Now is the time to prepare by thinking about a down payment, learning about your credit score (and fixing it if necessary) and studying market trends in your area.
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A business: If you aspire to be an entrepreneur, preparing financially may help you get ahead. Create the vision for the company you want to build and identify the overhead you need to get started. From there, you can develop ongoing financial strategies that will help you launch a business with a sound financial standing.
4. Pay Down and Eliminate Debt
When thinking about saving and investing, most people's minds immediately turn to retirement. While retirement is an important goal, many other life objectives also require you to develop financial strategies.
The average amount of debt that Millennials and Gen Z hold together is $166,608. If you are living with significant debt, paying it off is one of the smartest financial moves you can make. You might be paying more interest than you are likely to earn by investing.
Not sure where to start? Research the snowball and avalanche methods for paying off debt and see which would work better for you.
5. Protect Your Credit
Your credit score is one of the most important indicators of your financial health. A variety of people and institutions can use your credit to make decisions about you, such as lenders, employers and landlords. Your credit score can also reveal whether you pay bills on time or have ever defaulted on a loan.
Damaged credit can be very costly over time. It can result in higher interest rates on loans and credit cards, and make it more difficult to obtain them in the first place. Unfortunately, there are no secret formulas or easy fixes for bad credit. Rehabilitation takes time and discipline, but improving your credit is entirely possible. Here are some simple steps that you can take now to improve and protect your credit:
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Check your credit report every year for free and dispute any errors.
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Pay all bills on time by setting up payment reminders or enrolling in autopay when possible.
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Avoid late charges (all collections report to the credit bureaus).
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Pay down any balances on cards (high balances relative to your total available credit may impact your credit score).
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Pay off your credit cards in full each month.
6. Save and Invest for the Future
Your future self will thank you for putting away money now. Get into the habit of saving even just 5% of your income for your emergency savings or a sinking fund. You can also try automating your savings so that each pay period, a portion of your paycheck is automatically sent to your savings.
Build savings into your monthly budget so that it becomes a priority, not something you think of after the fact. Try giving yourself a goal each month of how much you want to save. When you have a goal, you’ll be more likely to stick to saving.
If you’re ready to make your money work even harder, investing is one of the best ways to help grow and protect your hard-earned wealth over the long term. If you’re in your 20s or 30s, this is the perfect time to get started. Let us explain.
Let's say Joe is a 25-year-old investor who deposits $10,000 into an account. If his portfolio earns an average rate of 8% per year, that single contribution could grow to $217,245 by the time Joe is 65, even if he doesn't add another dime to his account. However, if Joe waits until he is 35 to start investing, that same $10,000 investment would only grow to $100,627.
Although this is a simple example that discounts the effects of fees and inflation, and it is not representative of any specific investment, the basic principle is evident: Time is one of the most important ingredients to long-term investment success.
Investing involves risk, and the return and principal value of investments will fluctuate as market conditions change. Your investment strategy should take into consideration your:
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Goals
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Time horizon
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Risk tolerance.
It is important to know that all investments involve some degree of risk. Understanding and managing risk is one of the most essential pieces of a long-term financial strategy. When sold, investments may be worth more or less than their original cost. Past performance does not guarantee future results. However, putting your money to work through investing gives you a greater potential for return than saving alone.
A financial professional can help you identify your risk tolerance and work with you to create an investment strategy that helps you manage risk while pursuing your long-term financial goals.
Small Steps Can Make a Big Impact
While tackling all of these financial moves at once may seem overwhelming, you can start today by focusing on small steps and establishing good habits. Remember, there's no better time than now to start taking control of your finances.
We also want to offer ourselves as a resource to you, your family and your friends. We are happy to talk with you about your current financial situation and future goals. If you have any questions about the information presented in this report, please contact us. We would be delighted to speak with you.
