How Millennials Can Get Off to a Good Financial Start | Planning Insights

Anne Hussman |
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thumb_ID-100100233.jpg  Doing the right things at the right time may leave you wealthier later.

What can you do to start building wealth before age 35? You know time is your friend and that the earlier you begin saving and investing for the future, the better your financial prospects may become. So what steps should you take?   

Reduce your debt.  You probably have some student loan debt to pay off. If you are struggling to pay your student loan off, take a look at some of the income-driven repayment plans offered to federal student loan borrowers, and options for refinancing your loan into a lower-rate one (which could potentially save you thousands).1

You cannot build wealth simply by wiping out debt, but freeing yourself of major consumer debts frees you to build wealth like nothing else. The good news is that saving, investing, and reducing your debt are not mutually exclusive. As financially arduous as it may sound, you should strive to do all three at once. If you do, you may be surprised five or ten years from now at the transformation of your personal finances. 

Save for retirement. If you are working full-time for a decently-sized employer, chances are a retirement plan is available to you. If you are not automatically enrolled in the plan, go ahead and sign up for it. You can contribute a little of each paycheck. Even if you start by contributing only $50 or $100 per pay period, you will start far ahead of many of your peers.1

Keep an eye on your credit score.  Paying off your student loans and getting started saving for retirement are a great start, but what about your immediate future? You’re entitled to three free credit reports per year from TransUnion, Experian, and Equifax. Take advantage of them and watch for unfamiliar charges and other suspicious entries. Be sure to get in touch with the company that issued your credit report if you find anything that shouldn’t be there. Maintaining good credit can mean a great deal to your long-term financial goals, so monitoring your credit reports is a good habit to get into.1

Do not fear Wall Street.  We all remember the Great Recession and the wild ride investments took. The stock market plunged, but then it recovered. In fact, the S&P 500 index gained back all the loss from that plunge in a little over four years. Two years later, it reached new record peaks, and it is only a short distance from those peaks today.2

Equity investments offer you the potential for double-digit returns in a good year. As interest rates are still near historic lows, many fixed-income investments are yielding very little right now, and cash just sits there. To avoid it is to risk falling behind and coming up short of retirement money, unless you accumulate it through other means. Some workplace retirement plans even feature investments that will direct a sizable portion of your periodic contribution into equities, then adjust it so that you are investing more conservatively as you age.  

Invest regularly; stay invested.  When you keep putting money toward your retirement effort and that money is invested, there can often be a snowball effect. In fact, if you invest $5,000 at age 25 and just watch it sit there for 35 years as it grows 6% a year, the math says you will have $38,430 with annual compounding at age 60. In contrast, if you invest $5,000 each year under the same conditions, with annual compounding you are looking at $596,050 at age 60. That is a great argument for saving and investing consistently through the years.3

So what are you waiting for?  Start today!!

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - gobankingrates.com/personal-finance/money-steps-need-after-graduating/ [5/20/16]

2 - marketwatch.com/story/bear-markets-can-be-shorter-than-you-think-2016-03-21 [3/21/16]

3 - investor.gov/tools/calculators/compound-interest-calculator [5/26/16]

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