Young adults in their twenties and early thirties face a variety of challenges in their quest for long-term financial security. Some of these challenges are similar to those faced by previous generations, while others are unique to the times. If you are a young adult, here are five financial tips to help you manage your money today and plan for your future.
- Invest in your future. Okay, you finished college and have a good job, but who knows where tomorrow’s opportunities may lie? Moreover, ongoing technological changes in many fields will require continuous upgrading of education and specific work skills. One way to improve your job and career prospects and, in turn, your ability to save for retirement, in the 21st century is to give a high priority to furthering your education. The more varied and flexible your skills, the more attractive you will be to prospective employers.
- Start an emergency/opportunity fund. The uncertainty surrounding the world of work (witness the recent downsizing that swept through corporate America) will quite likely mean your working life may be punctuated by a series of job and career changes. If you need to go to school full-time to change career paths, you may have stretches of time without stable income. Building up an emergency fund (while fully employed) to cover three to six months’ of “bare bones” living expenses not only can help you control work-related transitions, but can also help you keep your hard-earned retirement savings intact. This type of savings fund can also be used for opportunities such as starting your own business or taking care of your family in uncertain downturns.
- Save early and continuously for retirement. If you aren’t aware of it yet, welcome to the reality that saving for retirement is a responsibility that falls squarely on your shoulders. Even in 401(k) plans that have employer-matching contributions, the bulk of the funding will be left up to you through tax-deferred salary reductions. In addition, the uncertainty surrounding the future of Social Security raises questions about what kind of retirement benefit the government may provide 30-40 years from now. The difference between starting your retirement savings program now versus waiting just ten years can have a dramatic impact on the end result—that is, how much you will have saved by the time retirement begins.
- Let retirement funds accumulate. If you change jobs early and/or often in your working years, consider rolling over your retirement plan account into an Individual Retirement Account (IRA) or new company plan. It may be tempting to cash in the account, especially if you have accumulated only a small amount, but doing so would make it immediately taxable, and you may also incur an early withdrawal tax penalty. However, the greater concern is that you would also be cashing in part of your most important ally—time.
- Properly managed debt can lead to greater retirement savings. Beginning in college, young adults are targeted by credit card companies. While credit cards are often a great convenience, they have the potential to create debt problems. Because payments can be stretched out far into the future, over-spending on credit can create an illusion of wealth. Meanwhile, high finance charges can make items cost considerably more than their ticket price. Paying off the full balance each month (except for emergency situations) is the best way to control your use of credit. That way, you can eliminate most finance charges and make more money available for savings.
As always, you can call or email our office with any related questions regarding a specifically-tailored plan for your future goals.
You can reach our office at (512) 296-8962 or email us at [email protected]m