4 pieces of money advice financial planners wish they could give to Gen Z
- Financial planners say the best way to build wealth is to start young and let compound interest do the rest.
- Saving, investing, and avoiding credit card debt are easy ways to get ahead.
- Now more than ever, apps and online tools make investing and tracking your money simple.
- Set up a no-obligation virtual consultation with a fiduciary Financial Advisor to see how you can grow your portfolio »
Being young enough to have time on your side but old enough to make decisions on your own is a sweet place to be in life. But it can also be risky, especially when it comes to money.
The decisions you make in your 20s can set you on a path to building long-term wealth, but they can also land you in debt. The difference could come down to your financial literacy, something you aren’t necessarily taught in school.
And while you may not be ready to hire a financial planner, it doesn’t mean you can’t benefit from their advice.
So, we spoke to financial planners to get their take on what they think Gen Z should know now about building wealth. Below are four pieces of advice you can take to the bank.
1. Watch out for high-interest debt
Sophia Bera of Gen Y Planning works with a lot of young people, and her No. 1 piece of advice is watch out for credit card and other high-interest debt.
It’s easier than ever to access credit, not only through traditional credit card providers but also point-of-sale lenders that let you buy now and pay later.
“I think credit is so easy now. They’ve just grown up with credit cards, like watching their parents use credit cards,” said Bera. “It can feel like fake money.”
Even the increased use of digital payment options, such as Venmo and Apple Pay, can make spending money easier because transactions happen in a split second with the click of a button.
Bera said establishing good financial habits from the beginning is key, and it starts with keeping track of how much you’re making and spending. She recommends taking advantage of budgeting tools like Mint, a free app that syncs your bank accounts, credit cards, and PayPal account, to track your incoming and outgoing money to help you spend within your means and stay out of debt.
2. Take advantage of the magic of compound interest
If there’s one thing to take away from this article, it’s this: Compound interest can be your best friend — or your biggest enemy.
Compounding helps your savings and investments grow over your time. The money you save or invest — plus the interest it earns — keeps earning interest. That’s interest on interest. But compounding can hurt you if you have debt: Your debt grows with interest every month, and then that amount grows even more the next month, making your debt snowball.
So tuck away money while you’re young, in high-yield savings accounts and investment accounts, keep adding to it throughout your life, and let the magic of compounding do the rest.
“When you’re young, it’s not about how much you’re saving, it’s about activity and it’s about time in the market,” said Malik S. Lee, financial planner and founder of Felton & Peel Wealth Management. “The faster we can get you on a savings plan, the more results you’re going to see when you look up and you’re 35, 40.”
Apps like Betterment, a robo-advisor and cash management service, can simplify investing for the long run and help you build a diversified portfolio catered to your financial goals.
3. Save for retirement starting with your first job
The first opportunity you get to sign up for a 401(k), do it, said Bera.
There are four advantages to starting early: you’re already acquainted with not having a lot of money, so you won’t feel the burn of cutting your income; your initial investment compounds; if your employer matches it, it’s free money; and you may qualify for the IRS Saver’s Credit. If you add up all the benefits, you can get an exponential return on your initial investment.
The Saver’s Credit is one of Bera’s favorite tax credits, though many young people don’t know about it and may qualify. To qualify, you can’t be listed as a dependent on someone’s tax return, must be at least 18 years old, must earn less than $33,000, and can’t be a full-time student. Qualifying income brackets and contributions change annually, so it’s important to check for those details each year.
“If you’re not doing that, you are missing out on free money. What I tell people is that there are not many opportunities in life for free money, so you need to take advantage of all of that,” said Bera.
In Bera’s experience, a major misconception that keeps young people from investing in a 401(k) is they’re not sure how long they’ll be at their job. But any money put into a 401(k) plan can be rolled over into a traditional IRA or a new 401(k) with a new employer, so keep that in mind.
4. Have the money conversation with your parents
This might seem simple, but it’s actually profound: In most cases, no one has your best interests in mind more than your parents. Many times, we don’t seek out advice from our parents because we think we already know everything about them, but they may have a lot of financial wisdom to share.
“A lot of times we feel that money is a taboo topic, but your parents, they have good pointers and some lessons that they can pass onto you as well, which are crucial as you’re getting started,” said Shala Walker of Stavis & Cohen Financial.
If your parents work with a financial planner, Lee recommends joining them in those meetings. The more you can learn early, the fewer mistakes you’re likely to make and the more you can maximize your money.
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