Milllennials, building the resources you need to help you with your life goals isn’t complicated, but the sooner you start, the better. If you wait until you are in your 40s or 50s, you’ll have to save and invest a much larger portion of your income.
9 tips to Start planning your future. The most important rule of financial planning is: Start now and start somewhere.
1. If you are living paycheck-to-paycheck, before you do anything else, stop that. Figure out where you can cut costs, even if it is by a few dollars a week. The best way to do this is to start tracking where you are spending your money. That way you can make changes and set goals around your spending. That will enable you to begin saving right away without having to make more money.
2. Save at least three months’ pay, so that you have a cushion to tap in an emergency.
3. Save the maximum you can in retirement accounts, up to the amount matched by your company, or up to the amount you can put aside tax-free in an Individual Retirement Account. Every $500 you save now will be worth more than $6,000 in 45 years at a conservative annual 6 percent rate of return. If you wait until you are 45 to save that same $500, it will be worth only a little more than $2,000 when you retire at age 70.
4. Diversify your investments. Diversifying your investments into broad-based stock mutual funds will help reduce your risk. When the market drops, as it is bound to, you may minimize your losses if you are diversified. (Keep in mind that the chief advantage you have when you are young is that your investments have time to recover from a drop in the market. Don’t panic and sell when the market falls.)
5. Invest in low-cost funds. When you are buying mutual funds, keep in mind that the best predictor of a good return is how low the fees are.
6. As you meet your other savings goals and as your income increases, add to your savings outside your retirement account. Having a larger pool of money to invest in something bigger when the time is right is invaluable. That something could be a house, a business or your children’s education. You can use the 50/30/20 rule: 50 percent of your income should go to necessities, like your house and taxes, 30 percent toward discretionary items, like vacations and meals out, and 20 percent toward savings.
7. Take care of the basics for your family. You probably don’t have enough money saved yet to take care of your family if something happens to you. Term life insurance is inexpensive when you’re young.
8. Don’t get fancy. You’ll hear a lot of people brag about the killing they made in the market or the latest hot investment, like cryptocurrencies. Keep in mind that for every successful bet they made, there are a few duds they’ve forgotten or don’t mention. If you want to dabble in risky investments, make sure that you don’t bet more than you can afford to lose.
9. Establish a relationship with a professional. At some point in this journey, you’ll want the benefit of a professional’s advice. Perhaps it’s when you have a child, once you’ve accumulated a small pool of assets, or when you are ready to buy a house. Call us at 779.220.9608 for your complimentary one on one session