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NextGen (Millennial & Gen Z) Financial Planning Tips | Debt, Investing, and Saving for Retirement

May 23, 2023

April may officially be Financial Literacy Month, but financial literacy is for every person, every day of every month.

"What is financial literacy month?" It is a national movement to promote and support financial education for the next generation. Why is it necessary?

The reality is, there is a huge knowledge gap when it comes to personal finance in the next generation. We aren’t taught the basics of debt management and investing in school so unfortunately, many people learn the hard way.

Recent studies revealed that 75% of teens in America view their family as their most trusted source of financial education so please pass this information on to your kids, grandkids, nieces/nephews, or anyone who you think would benefit.

1. Debt Management 

The average credit card balance went up 26% in just one year.  Stimulus checks stopped in 2021 and working from home tapered off, all while interest rates on credit card loans skyrocketed. LendingTree says that millennials are paying average credit card interest rates of 24%; even when they can afford to pay more than the minimum.

*Debt Tip: If you have multiple loans to pay off, pay the minimum on all debt each month. Then, put your extra cash towards the highest interest rate debt to pay it off quicker. Choosing to only pay the minimum amount each month will keep you in debt for a long time, and you’re going to pay a lot more money for that loan compared to if you pay more than the minimum per month.

The 2010s birthed the phrases YOLO and FOMO, which led to a mindset of trying to keep up with the Jones’s, potentially driving the younger generations to spend beyond their means.

The elephant in the room is that paying down debt requires more modest living. This is often the hardest part requiring diligence and budgeting. You should create a strict budget for spending each month, and consider minimizing costly vacations, dining out, hobbies, etc.  It doesn’t mean that you have to get rid of these forever, but setting a minimal budget for these activities will help you climb out of the hole in your debt. This means saying NO to some things now, so you can say YES later, debt free!

2. Investing

Saving for retirement while young is kind of like cleaning up while you cook.  It may seem like more work upfront because you’re wiping up spills, putting ingredients away, and cleaning pots while you chop, measure, and work the stove. But once the cooking is done, you reap the rewards of that hard work. Cleanup becomes a breeze because there is almost nothing left to do. Saving for retirement is similar – it takes concentration and discipline while you’re young, but those early efforts have a huge payoff. 

I know retirement can feel like such an arbitrary thing that is decades away, but the reality is that saving for retirement today will create freedom in the future. Freedom to retire when you want and live the life you want. With guaranteed pensions being a thing of the past, you are solely responsible for your retirement funding and planning. Thanks to compounding interest, the earlier you start investing, the less you’ll have to save each month when you’re nearing retirement.

For example, Sally invests $150k from age 25 to 40 and lets compounding do the rest vs. Bob who invests $300k from age 35 to 65. They are both 65 years old, but Sally only paid $150k to have over $1M whereas Bob paid $300k to only have $838k.  This is why starting early is so important.

3. Saving for Retirement

Many next-gen clients ask us how to start saving.

  • Participate in your employer-sponsored plan. This can be a 401k, 403b, thrift savings plan, or SIMPLE IRA.
    • Step 1: CONTRIBUTE TO THEM. Make sure you contribute at least up to the % that your employer matches. 
    • Example: your employer has a 401k plan that will match 100% up to 4%. What that means is that your company will contribute their money, dollar for dollar, equal to what you contribute to your account, up to 4% of your salary.  If you put $0 in for the year?  The company puts $0 in.  If you put 5% of your money in, your company puts in 4% of theirs.  This is free money, but you must contribute as an employee to get it.
  • As an added bonus, you get a tax deduction for the amount you contribute to your retirement plan.

  • Do you have a large chunk of money sitting in a savings account? Consider putting some in a Roth IRA.
    • Step 1: OPEN ONE. Roth IRAs are one of the best vehicles to save for retirement.
    • Your contributions are after-tax, meaning you have already paid taxes on this money, so ALL earnings and gains in your Roth grow completely tax-free.  When you take money out of this account later on, you don’t pay any taxes on the money taken out.  There are a few restrictions to take earnings out tax-free, but if you meet those requirements, you're golden. This is a huge benefit.
    • Remember: you can only contribute $6,500 per year, and only if your income is less than $153,000 / year.
      • If you don’t have an extra $6,500 laying around to contribute, that is ok. Starting somewhere is most important – it can be $50 per paycheck or $100 per paycheck. As your income increases, you can work your way up to contributing $6,500 per year.  Not only will this add up over time, but you will reap the benefits of dollar cost averaging (that's a video for another time).
      • If you invest $6,500 per year for 10 years, earning 6% per year, how much will be in your account in 40 years? $492,074. If you choose to open your own Roth IRA vs professional management, that's your prerogative but please MAKE SURE THE MONEY IS INVESTED in your account.
      • Note: Retirement plan withdrawals may be subject to taxation and penalties when withdrawn early.

I hope you find these quick tips helpful. If you'd like to learn more from us about ROTH IRAs and NextGen Financial Planning, you can here. Please reach out to me with any questions or specific scenarios you’d like to review, my team and I are here to help!

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