To be a 20-something is to wrestle again and again with big life moments: Graduating from college. Getting a job. Moving into your own place. Getting another job. Getting married. Buying a house, maybe, or having a kid.
Each milestone comes with plenty of reasons to worry about money. Or as millennial-focused financial adviser Sophia Bera more enthusiastically puts it, “major planning opportunities.”
And that really matters: Your 20s are when adult things start happening, and the way you handle them can ripple through the rest of adult life. Start saving and taking care of your credit now, and you could save thousands of dollars later on.
So, 20-somethings, make the most of it. To help out, here’s some advice from financial planners who work with young people — milestones to aim for before you turn 30 and tips that could give you a big boost later in life.
- Start saving for retirement – now
Employee Benefit Research Institute surveys suggest that many people delay saving for retirement.
Young people are less likely to have jobs that offer a retirement plan, the data show, but even those that do are less inclined to save than coworkers a few decades their senior.
Financial advisers say that’s a mistake. Money invested in your 20s has much more time to grow, meaning you might not need to set as much aside later on in life.
And if your employer matches those contributions, your retirement savings will grow even faster. Advisers recommend putting enough aside to max out employer matches.
That’s why advisers like Bera and Antwone Harris of Charles Schwab say retirement savings is one of their top priorities for clients, even above paying down student loans.
Harris gives his clients an example of the importance of starting early: Someone who saves money for 10 years starting at 25, assuming steady growth, will retire with more than someone who starts at 35 and saves for the next 30.
Put another way, you can put away 10 to 15 percent of your income in your 20s, or you can wait and save 25 percent or more in your late 30s to get the same result, Harris says. Wait even longer, and in your late 40s, you’ll have to put away 35 percent just to catch up.
“Most people go, ‘Well, when I start to earn more money, I’ll save more.’ They just don’t realize how critical those initial years are and how much less they’d have to save over time,” Harris said. “It makes a huge difference.”
- Set up an emergency fund
First, some good news: Young people don’t appear any less inclined to stash away money for emergencies than their elders, according to Bankrate.com polling data.
A little over a quarter of 18- to 29-year-olds said in June they don’t have any money set aside; that’s in line with other age groups.
Here’s the bad news: That still means a lot of young people aren’t setting up emergency funds.
Financial advisers say that people who are single should have six months of expenses saved up, in case they lose their jobs, have a medical crisis or otherwise need money to stay afloat. Married couples should have three months’ worth saved up, Harris said.
Plus, people in their 20s tend to have less saved for emergencies than older people. Fewer than half of respondents in the 20-something category had three months of expenses set aside. Only 14 percent had six months’ worth saved up, compared to double that among people 50 and up.
Bera recommends setting up a separate bank account and funding it gradually, say $100 a month, with automatic transfers or direct deposit.
- Pay off your credit cards
All debt isn’t created equal, says Harris of Charles Schwab.
He splits it into two categories: “good debt,” low-interest loans that help you get something that gains value (like a house or an education), and “bad debt” like credit cards, which carry high interest rates.
So Harris and other financial advisers recommend eliminating the higher-rate debt first. Pay the minimum balance on student loans, but be more aggressive with credit cards, which often sport interest rates in the high teens.
Student loans are important, too, but beyond minimum monthly payments, advisers say they don’t need to be a top priority. It’s more important to set money aside for retirement and emergencies; financial advisers recommend paying down student loans after taking care of those higher priorities and paying off credit card debt.
Debt weighs especially heavily on young people’s net worth, census data show. People younger than 35 had a median net worth of just $6,676 in 2011, well under the national average of $68,828.
Younger people have had less time to build up savings or buy assets like a home, which partly explains the divide. But consider this: If you lined up everyone younger than 35 by net worth, the bottom fifth would have a net worth of negative $22,646. The next fifth would have a median net worth of $0.
That’s not to say everyone older than 35 is more prosperous, but it does show that debt is weighing down many young people.
- Keep an eye on credit
Keeping on top of credit card and student loan payments should give your credit score a boost, but Bera cautions that that’s not enough to ensure a good credit score.
She recommends checking your credit report regularly to make sure some long-ago bill that got lost in the shuffle isn’t dinging your creditworthiness.
Credit scores matter — a lot. They dictate whether you can get a loan and what interest you pay on it. Go to buy a house, say, and a years-old mistake could cost thousands of dollars.
By law, you’re entitled to one free copy of your credit report a year from each of the major credit bureaus — TransUnion, Equifax and Experian. One idea: Stagger when you request them, and you can check in on your credit once every four months.
They’re also easy and quick to pull. They can be requested for free at AnnualCreditReport.com.
It’s a right that most Americans — especially young people — aren’t taking advantage of.
A survey from the National Foundation for Credit Counseling earlier this year found that only about a third of all respondents had pulled their credit report in the last year; 18- to 34-year-olds had the lowest rate, at 32 percent.
- Make longer-term goals
Beyond debt and retirement savings, advisers recommend setting specific financial goals with set time frames.
Looking to save for a house eventually? Set an amount and a number of years. The same goes for other goals, be it getting married or having a kid.
The time frame is important, Harris says, because the duration of your investments should dictate how much risk you take on.
Hoping to cash out an investment in a couple of years? You should play it safe, sticking to low-risk options like certificates of deposit or certain bonds.
Have more time to work with? You might be able to wade into the stock market, where the risks and returns are potentially greater.
A word of caution if you do, though, says Harris: Individual stocks are riskier plays for beginning investors. Index funds and exchange-traded funds can make for easier, and better diversified, investments that draw on a bigger sampling of the market.
“They really need to be honest with themselves about how much they know about investing,” Harris said.
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