Financial “To Do List” Series: Managing Money in your 20s
I often get asked the question: “How much money should I have saved for retirement?” I enjoy getting this question because the answer is different for everyone - there is no “one size fits all” response. Everyone has been dealt a different path in life. I like to address these questions by getting people to start financial “To-Do” lists. The starting point and items to include on your “To-Do” List will vary depending on your age. Let’s start with your 20s.
What things do you need to prepare for in your 20s?
Being in your 20s represents a time of transition. Many are experiencing their first jobs out of college and, with that, financial responsibilities that are beginning to mount. The best piece of financial advice to give someone just starting out is to simply get started. What does this mean?
To do list for 20 year olds
- Get started on a savings plan. For most, your first job out of college might present you with the option to start to save for retirement under a 401(k) plan, for example. When presented with the opportunity to do this, take it! Defer at least enough money to meet a company match - which is essentially “free money”. The common contribution from an employer is generally 3% to 6% of an employee's pay. For employees to receive this contribution, they must contribute a specified percentage into a 401(k) plan. The employer will then match that contribution to the retirement plan being offered. If a retirement plan option is not available, one should look to set up Individual Retirement Accounts with contribution being made directly from your paycheck – this will keep you disciplined and on track.
- Prioritize short-term and long-term goals. One thing Millennials have going for them is time. The earlier you start planning and saving the better. Maybe part of your short- term plan is to make a significant dent in your student loan debt. Maybe your goal a little further out is to buy a house. Whatever the goal is, the key is to set up a savings plan and stick to it.
- Set up an emergency account. The emergency account should be funded with at least 3-6 months of salary. How do you get there? Be consistent. Set up a plan where you are setting aside a certain amount each pay period – you will be surprised how fast this adds up!
From a retirement savings perspective and goals setting mindset, Millennials are in a great position – they have time on their side. More time to have their money work for them. The key is to find consistency in money habits – having a plan, setting goals and checking in on your plan will pay large dividends in the future.
In your 20s....
- Be consistent with your money habits
- Begin contributions to Retirement Savings
- Work retirement plan – defer enough to at least meet company match,
- Individual Retirement Accounts
- What is your short-term plan?
- Pay down student loans? Maybe buy a house in 5 years?
- Plan for long-term goals
- Build up a cushion/emergency account with at least 3 to 6 months of salary
Read our next piece, “Financial ‘To Do List’ Series: Managing Money in your 30s”.
Contact KLR Wealth Management, LLC with any questions.
Published on: 02.26.18