People in their 20s and 30s are busy with all kinds of major life changes: graduating from college, starting their careers, getting married, having children, buying their first home — the list goes on! In this season of life, you may feel like you have no time to think about the next 10 or 20 years, let alone your eventual retirement. But creating good financial habits and saving for retirement early can help set yourself up for success long into the future.
Why Start Early
Without defining clear goals and creating a plan to help you reach them, you’ll end up blindly putting money away into savings without a strategy or purpose. We call our customized plans “financial roadmaps” because they’re meant to set a course for your life. Without guidance, it’s all too easy to get lost and fall into bad habits like racking up credit card debt or putting off saving for retirement.
Many younger adults don’t think they need to seek out a financial advisor until closer to retirement, but working with an advisor early can help you stay on the right path. An advisor can help weigh the pros and cons of major financial decisions, help spot potential problems before they arise and offer accountability. They can help you develop solid money management skills, and good decisions early on will lead to more good decisions, creating a lifestyle that benefits your financial well-being for years to come.
Saving for the future at a younger age also helps you maximize the power of compound interest. Let’s say you save $100 a month in your 401(k) starting at age 25. When you turn age 65, you’ll have over $335,000 saved — assuming an 8% yearly return. If you wait until age 35 to start saving, but set aside $200 each month, you’ll have less than $300,000 by age 65. If you want to see how saving early and often can benefit you, check out our compound interest calculator.
First Steps
Many younger people put off financial planning because they aren’t sure how to start. It might sound intimidating to plan your entire financial future, but every small step in the right direction adds up to make a big difference.
Create a realistic budget and stick to it. Budgeting may not sound like fun, but it’s essentially making sure your money is going where you want it to. Without a budget, you’ll blindly spend and wonder where your paycheck went. Make sure to create realistic guidelines so you can stay on track with your budget and prioritize paying yourself first. This includes building an emergency fund and saving for other long-term goals like buying your first home or retiring.
Contribute to your 401(k). If you have an employer-sponsored 401(k) plan, make sure you’re saving at least enough to get any contribution match being offered. Otherwise, you’re leaving free money on the table! As you move up in your career, commit to saving more for retirement. You can set up automatic increases each year until you eventually reach the maximum annual contribution limit.
Work with a financial advisor. A financial professional can help you create a comprehensive plan that adjusts to every new stage of life. They can offer annual or quarterly checkups to ensure you’re on the right path. A good financial plan should center around your unique goals, and an advisor can help you sort and prioritize your short-term and long-term goals.
When you meet with a financial planner, think through these kinds of key questions:
● What kind of lifestyle do I want?
● How much can I afford to save and invest every month?
● What are my goals before and after retirement?
● What are all of my retirement benefits through work that I can take advantage of?
● How aggressive should I be with my investments?
● How can I increase my financial literacy?
This will help you formulate clear goals to help guide your decision-making as you budget, save and invest.
Understand there is no one-size-fits-all solution. Younger adults are often tempted to trust social media or one-off articles about money management and DIY their financial plan. But these quick tips and strategies are not helpful for everyone. They often contain generalized advice to reach a wide audience.
There is no perfect investment or magic number to mark when you have enough money to retire. Many articles say you need $2 million to retire successfully, but those kinds of benchmarks don’t factor in your individual circumstances. Your financial plan, tools and strategies should be built with your unique financial situation or goals in mind.
We get excited when younger adults come into our office, because it means we have 30 or 40 years to help them reach their goals. Creating a financial plan at a younger age means you’ll hopefully have less legwork to do as retirement approaches, because you took the time to set yourself on the right course. If you’re interested in building your own financial roadmap, schedule a meeting with our team.