Making Smart Decisions with Money in your 20s
Jay L. Gershman, Retirement Visions LLC, West Hartford
For almost all of us, money is a major source of stress in our lives. In fact, according to one insurance company’s study, 44% of Americans named it the number one cause of their day-to-day worries. So this summer, I’ve decided to tackle the topic head-on, decade by decade, to give readers an idea of what they should be financially focused on during each major milestone in life. I’ve asked an advisor from my office to help me with the priorities for their age group too. Let’s kick things off for the young guns in their twenties with Investment Analyst and Retirement Plan Advisor, Emily Normandin.
While most people think the twenties is the decade of financial freedom, this is no longer the case. Student loans, entry-level salaries, and paying rent for the first time can make balancing the budget a struggle. So let’s start with the basics - living within your means.
In these Instagram times that we live in, it’s very easy to get swept up in the glamorous life. Designer clothes, expensive cars, photo-worthy holidays, that sort of thing. But think about this. The difference between a $500 car payment and a $300 car payment means $200 per month going back towards a high credit card balance, outstanding loans, or, dare I say it, your 401K. If you have to choose, be sure to pay off high-interest debt first, even if it means forgoing savings.
When it comes to your monthly budget, remember that the little expenses add up. If you bought a coffee and lunch five days a week, at an average $13 a day, that’s $65 a week and over $3,000 per year! Keeping your budget tight will allow you to save more than you might think. My advice? Use it to start an emergency fund which you can keep in a high yield savings account that will earn interest with no extra work required. If the Great Recession taught your friends in their 30’s anything, it was that there is no such thing as job certainty. A little cash on hand might save you when you need it the most.
Now to the part that no one in their twenties wants to think about - saving for retirement. If it’s available to you, you’d be crazy not to contribute enough to your 401(k) to get the full employer match. If you’re not eligible for your company’s 401(k), start a ROTH or Traditional IRA as soon as you can. Saving for retirement may seem low on the priority totem pole when disposable income is disappearing and retirement is almost 40 years away, but starting early is crucial. Contributing a lower percentage or dollar amount to your 401(k) or IRA is better than waiting until you can afford to put in more, simply because compound interest and time will pay off bigger in the long run. Start with an amount that you’re comfortable with and then gradually increase your contributions over time.
Finally, there is life insurance. Why now? While you might not think you need it until you have a family or a house, the reason to buy life insurance when you’re in your 20’s is simply because the rates for young and healthy people are so much cheaper. Lock it in low and you’ll be happy you did when the real “adulting” starts.
Bottom line: Oscar Wilde was quoted as saying, “youth is wasted on the young.” Let’s prove him wrong by using the advantage of time to build wealth sooner and less painfully. Make smarter decisions starting today!
Jay Gershman is the Owner and Founder of Retirement Visions LLC, a West Hartford-based financial planning firm that focuses on comprehensive life planning and financial management. Emily Normandin is a 2016 graduate of Bentley University in Boston, MA. As a new financial advisor at Retirement Visions, she is focused on building her relationships and managing the company’s 401(k)s. For more information, visit www.allset2retire.com. Information and advice are for guidance only and opinions expressed belong solely to the author. Securities offered through Securities Service Network, LLC. Member FINRA/SIPC. Fee-based services are offered through SSN Advisory, Inc.,