Social Security could be long gone. Most pensions are already a thing of the past. So what does that mean for Millennials and Gen Z when it comes to trying to plot out a financial future that brings stability and fulfillment, instead of uncertainty and dreariness? “The one thing young people should not do is just ignore the situation,” says Mark Henry, an estate planner, investment advisor and founder/CEO of Alloy Wealth Management.
“The future will come whether you’re ready or not, so planning is critical, especially in cases where many young people have little to no savings coupled with a large student-loan debt.”
While there’s reason for concern, there’s also reason for optimism if young people start making the right moves in their financial lives. Alloy Wealth Management Chief Henry offers this advice:
- Stop wasting time. Saving might seem like something you can put off for now, but every week you wait is a week that puts you behind. “When you’re young, it can be hard to think just a couple of years ahead, much less a couple of decades ahead,” Henry says. “But if you get started now, you’re future self will thank you.”
- Start small if necessary. One factor that causes some people to postpone saving is that they already feel squeezed just to pay the bills. “Maybe you hear about people who contribute 10 percent or 15 percent of their paycheck to a 401(k) and you can’t imagine parting with that kind of money,” Henry says. “That’s all right. Your early contributions don’t have to be big if you can’t afford it.” But do something. Even a 1 percent or 2 percent contribution can make a difference over the long haul. Later you can increase the amount.
- Understand risk. One advantage to investing while you are in your 20s and 30s is that you are in a better position to take risks than a 60-year-old, Henry says. And the investments with the potential for the greatest return are the also ones with the greatest risk. Of course, that means you can also lose money. Young people who are three or four decades away from retirement, though, have time to recover if the market takes a tumble, unlike their older counterparts. “But even some young people are risk averse, so it’s important to determine your risk tolerance,” Henry says. “Will you sleep soundly during the market’s ups and downs, or will you like awake all night stressed out?” You will need to find your comfort zone.
“One last thing to consider is to resist using those credit cards,” Henry says. “It’s too easy to build up a big balance and end up paying a large amount just in interest each month. That’s money you could be stashing away for your future instead.”