Well … some are. Others could use a nudge.
Financial Finesse found through its Generational Research report that today’s twenty-somethings actually have a better handle on managing cash flow than their predecessors, but aren’t worried about much beyond that. The report showed that only 17% say they’re on track to successfully replace 80% of their income during retirement — so it’s time to take action, Generation Z.
With that in mind, here are four financial tips you should know now in order to secure a comfortable retirement when the time comes:
Now’s the Time to Take Risks
Financially speaking, the younger you are, the more time you will have to recover if you fail. The old adage rings true; in order to make big money, you’ll have to take big risks. Young investors are the perfect candidates for this type of investment strategy, because they have time on their side. They can aim for larger returns by taking larger risks, because he has more time to recover if their venture fails.
But don’t make the mistake of speculating or gambling with your investments. Young investors’ ideal portfolio includes a diverse combination of small-cap growth stocks. While it’s true that, similar to gambling, you never want to invest more initially than you are prepared to lose, there are many more facets of the decision to consider than simply the risk level.
Stop Wasting Time
The time to invest and to begin planning for your retirement is now. By waiting to take part in employer-sponsored retirement programs, and IRAs, you’re only hurting yourself. Simply put, the earlier you start to save, the more time the money has to generate compound interest. By starting in your 30s, you could be losing out on thousands of essentially free money.
Let the money do the work for you by contributing a small percentage of each paycheck — at least enough to qualify for any company matching — into a 401(k) account, or, if your employer doesn’t offer a consider that option, take control of your future by opening a Roth IRA and contributing to that regularly. Then sit back and watch as your money compounds over the decades. You’ll end up contributing thousands less than your peers who wait until they’re in their 30s to start.
Live Below your Means
It can be especially difficult in today’s economic climate, but do everything in your power to not only live within your means, but below them. Shacking up with roommates is a great way to keep living costs down, which makes it easier to save for your retirement and other expenses that can arise down the road. By living below your means, you’ll free up valuable cash flow and keep the possibility to look at the pros and cons of equity-indexed annuity guarantees and other investment options, and proactively plan for your financial future.
Do you really need to have a brand new car? Imagine how much money you could do with all the money you’ll by driving an older model and not making a car loan payment every month. Take care to keep your credit card balance at a manageable amount, if not paid off each month. Living below your means entails living a lifestyle that doesn’t require your entire paycheck to sustain.
Set a Rough Timeline
In order to plan for your future, you’ll need to have a rough idea of what you’d like your future to be. If your goal is to retire early — say, at age 55 — you’ll want to plan accordingly.
This is one area of financial planning that most Gen Z fall short on. The Financial Finesse report showed that only 29% of all twenty-somethings have run a retirement calculator to determine just how much money they will actually need to make their retirement dream a reality. This is especially disheartening, considering most people underestimate how much they’ll need when the time comes.
It can be overwhelming to think about saving for something that’s as far down the road as retirement, but now’s the time to buckle down and do it. Whether you’re holding back because you don’t fully understand the financial tools and options available to you, or if you just haven’t thought about it, start reading up on it and don’t put it aside any longer. If you’ve already started implementing these financial tips, congratulations, you’re leaps and bounds more ready for retirement than most of your peers.
Photo Credit: nathanmac87