If you’re a Gen Zer who has reached $100,000 in savings, congratulations, you’ve accomplished a significant financial milestone. As the youngest generation in the workforce, this achievement is worth celebrating. However, rather than relaxing and spending your savings, it’s essential to set yourself up for long-term financial success. This is the time to strike a balance between enjoying your hard-earned money and securing your financial future.
Establish an Emergency Fund
Having an emergency fund acts as a safety net in case you experience financial turmoil without having to accumulate high-interest debt. While you might be tempted to use this money to invest, it’s best to keep it somewhere accessible.
“Before diving into investments or aggressive savings, it’s crucial to have an emergency fund in place,” said Taylor Kovar, CFP and CEO at Kovar Wealth Management. “This fund should cover three to six months of living expenses and be kept in a readily accessible account, like a high-yield savings account.”
Lowering and eliminating debts can free up cash flow in the budget, allowing some breathing room and the ability to put away more money for an emergency fund and future financial goals such as buying a home. It’s best to prioritize and be aggressive with high-interest-rate debt, which is debt with an interest rate greater than 7%.
“When Gen Zers hit that impressive $100,000 savings mark, it’s a prime opportunity to tackle any lingering high-interest debts,” said Jeff Rose, CFP and founder of Alliance Wealth Management LLC. “With the average Gen Zer carrying a credit card balance of $3,328, according to Credit Karma, strategically reducing or eliminating such debts can pave the way for financial freedom, ensuring more of their money stays in their pocket, not the lenders.”
As for debts with interest rates under 7%, it’s still essential to address them, but you can approach them less aggressively by making minimum payments over time.
After establishing a solid savings cushion and a handle on high-interest-rate debts, you can explore the world of investing. This allows your money to grow over time, enabling you to reach retirement goals and other financial goal points faster.
“Once an emergency fund is established and high-interest debt is under control, should consider investing,” Kovar said. “Starting with a diversified portfolio, such as index funds or ETFs, can be a good move. It’s also the right time to take advantage of employer-sponsored retirement accounts, like 401(k)s, especially if there’s a company match.”
Have Clear Financial Goals
Hitting the $100,000 savings mark is undoubtedly impressive, but it’s not the moment to kick back and relax. With the rising cost of living and significant future expenses like homeownership, it’s crucial for this generation to maintain sound financial practices.
“Whether it’s buying a home, traveling or starting a business, having clear financial goals can guide savings and investment decisions,” Kovar said. “It’s easier to stay motivated and disciplined when there’s a clear vision in mind.”
It may sound unconventional, but having substantial savings means you have room to invest in yourself and enhance your skill set.
“Dedicating funds to enhance skills or gain new ones through specialized courses, certifications or further academic pursuits isn’t just spending; it’s strategically planting seeds for future career and financial growth,” Rose said. “This might mean diving into a workshop that sharpens leadership abilities, enrolling in a course that boosts expertise in a specific field, or even embarking on a degree that opens new career doors.”
Taking on new personal challenges and growth will help you keep a competitive edge in the job market, ensuring long-term financial stability and success. While it might not bring immediate financial returns, continuous learning and staying relevant in your industry will offer returns over time.
Save For Retirement
Sure, retirement may seem lightyears away for Gen Z, and saving for it might not be the most appealing prospect. But here’s the secret: The earlier you start saving, the more you can benefit from the magic of compounding interest.
“The standard rule of thumb is to target 15% of your gross annual income going toward retirement savings, but keep in mind that this assumes you start at a young age and plan on retiring at normal retirement age,” said Kendall Meade, CFP at SoFi. “For those who may have started later or plan to retire earlier, you may want to increase the amount you save. Always take advantage of any employer match offered. It is important to start saving for retirement now, it can be easy to keep kicking the can down the road, and before you realize it you have nothing saved.”
A major advantage for Gen Zers who start saving early is the opportunity to save less each month and let compounding interest do the work, rather than having to put aside significantly more later on.
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