When you think of the term “net worth,” you may picture middle-aged investors discussing the stock market or their real estate portfolio. But many financial experts agree that the best time to start thinking about your net worth is in your 20s.
These years offer an early opportunity to pay down debt, increase your income, and start investing–setting you up for future financial success.
Start Saving and Investing as Soon as Possible
According to a recent GOBankingRates survey, the majority of Gen Z (43%) haven’t started investing yet.
Of young people who do invest, most (24%) put their money toward real estate. Other popular investment strategies among Gen Z include stocks (22%), 401(k)s or IRAs (17%), mutual funds or ETFs (14%) and cryptocurrency (11%).
Choosing to invest at a young age requires seeing the big financial picture, which can be hard, said Benjamin Koval, CFP and founder of SoundPath Retirement Strategies.
“Everyone wants to have a financially healthy retirement, but many get too caught up in the day-to-day of their lives to properly prepare,” he said. “While it’s true that some short-term priorities must be addressed first, the effects of compound interest make early saving significantly more beneficial than trying to play catch-up later in life.”
For that reason, he recommends that young people set up automatic transfers to retirement accounts and other investments. It’s easier to start investing a set amount of money — and stay consistent — if you never see it in your bank account to begin with, he noted.
Develop Good Financial Habits Now Rather Than Later
Rising inflation has put a strain on many people’s finances, including Gen Z. GOBankingRates found that most young people (nearly 27%) spent 21% to 30% of their income on rent or housing, over 18% spend 31% to 40% of their paycheck and another 18% spend 41% to 50%.
These hefty housing costs may not leave much room for saving and investing. So it’s even more important for young people to develop healthy financial habits now.
“Be aware of how you spend your money,” said Carlos Legaspy, a wealth manager and CEO of Insight Securities. “Many times, purchases are impulsive, and you get to payday not knowing where your previous paycheck went.”
To make saving easier, Legaspy recommends turning it into a game. Look for satisfaction in finding discounts, clipping coupons, and getting high value for your hard-earned money.
“Bottom line,” he said, “you need to spend less than you earn.”
Save Half Your Raises for Your Future Self
One common mistake Andrew McNair — an investment adviser representative and president of SWAN Capital — sees young people make is investing too conservatively in their 401(k)s.
“If you’re generally happy with your current lifestyle, I recommend splitting every future raise — 50% for yourself now and 50% for your ‘future self,'” he said. “Next, set an Apple or Google reminder for every six months to increase your 401(k) by 1%, and remember to rebalance your allocations while you are logged in.”
Take Advantage of Recessions
It’s easy to panic when a recession sets in, especially if you’re a young person with student loans, a towering rent or mortgage payment and growing responsibilities.
But instead of fearing recessions, McNair encourages Gen Z to view them as opportunities.
“If you have a 20-year investment horizon, put blinders on during market downturns,” he said. “Look at recessions as opportunities to buy additional shares while on sale.”
Be Cautious of Trendy Investments
It may be fun to sit with your friends and chat about the latest investment fads, but watch out for “pub advice,” warned Koval.
“The world is full of people sitting at the local bar explaining how uranium mines off the coast of Peru are the best investments you can ever make,” he said. “Worse are the many sales organizations trying to convince the world of how they have the inside knowledge to make you wealthy. There may be a place in an investment strategy for speculative investments — if risk tolerance allows — but most of your funds should be in more traditional vehicles.”
As a young person, time is your friend, which makes more traditional investments like the S&P 500 a safer option than current trends like Bitcoin, he added: “Don’t get so caught up in a fad that you get exposed to unnecessary risk.”
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