For young people, it is all about the here and now. Making money to spend it the next day and not worrying about the future. But a lot of people between the ages of 25-30 don’t know that if they want to build wealth when they’re older then right now is the time to start making the fiscally responsible moves. So, if you’re just starting out in life, here are a couple of tips that will help you build up wealth and help manage it when the time is right.
Get into the Habit of Saving
Many people have a problem with saving. Whatever they earn suddenly vanishes into bills, student loan payments and a shopping trip or vacation before the month is out. Instead of spending all that you make in the month on unnecessary expenses, put a couple hundred aside for the month every month and it’ll make all the difference in the future. It doesn’t have to be for a specific reason, just building for a rainy day or for your future.
Budget Like You Mean it
It’s not enough to just save; you must also cut back on expenses. That’s why it isn’t so much what you make but how much you spend that matters. If a person makes $40,000 a year and another person makes $20,000 a year and both have $10,000 in mandatory expenses, then you would expect the person making more to end the year with more saved. However, if their unnecessary expenses triple their mandatory expenses, then they aren’t saving anything and the person making less is able to save more than the person making more. So, the trick to having more money left over by the end of the year is to cut out the unnecessary spending and budget so you know where all your money is going each week.
Let Your Money Grow
Many young workers in their twenties will leave a job but won’t roll over their 401(k) to their next employer’s plan or an IRA. Instead, they cash out and with a $10,000 payout they might be able to pocket $7,000 of it. However, if they continue to let their money grow, by the time they retire they could’ve had an extra $100,000. That’s why you don’t want to cash out, just continue to let your money grow and you’ll see the difference come retirement.
Don’t be Afraid to Invest
Studies have shown that 40% of young people today say they’ll never be comfortable investing in stocks. This isn’t surprising since this is the generation that survived one of the biggest recessions in years. But young people just have to shake off the goosebumps they get when thinking about stocks and see the potential in it. Since the mid-1920’s, no portfolio that consists of mostly stocks has ever lost funds in any 20-year stretch. Meanwhile, they average a gain of 10.8% a year that is more than double the return for bonds. So, with a smart investment young people can get double their initial input when they reach retirement age.
Instead of Traditional 401(k) go for the Roth 401(k)
Everyone knows that a 401(k) is a smart decision if you’re planning on retiring in the future (which most people are). However, many people don’t predict that they’ll be in a higher tax bracket once they reach retirement age; in that case, young investors want to choose a Roth 401(k) because with regular 401(k) you pay income taxes on withdrawals, that’s not the case with Roth. Choosing this option allows you to save after-tax dollars because you aren’t paying higher taxes once you start using your 401(k).
All these are little tips that could make a world of difference for you in the future. The amount of time you take planning out your financial future will help you develop your wealth and come out on top in the end. However, when all this wealth is accumulated you’ll need some assistance on how to deal with it. That’s where a financial advisor comes in.
A good Wealth Manager will help you not only maintain your wealth but increase it over time. So, you don’t want to wait until you’re at your retirement age to start dealing with the money you’ve accumulated, once you’re ready, you can seek out financial assistance and they can guide you into making fiscally responsible decisions that will get your money working for you after all the years you spent working for it. However, if you weren’t born with a million dollars, the journey to wealth starts now and will continue for decades to come. And once you’ve reached your financial goals your Bedford Indiana financial advisor will help you use your money to plan for a cozy retirement.