If you just finished school and are entering the workforce, financial planning may not be the first priority on your mind. However, as any baby boomer will attest, the future comes faster than you think. When it comes to millennial financial planning, the best time to create a roadmap for your finances is right now.
Make a Commitment to Yourself
Each month, you pay your landlord, your cell phone provider and your credit card company (to name a few), but there is one person many millennials don't pay: themselves. You're the one actually going to work each day, so pay yourself first by putting a portion of your income into a savings account.
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The easiest way to do this is to enroll in your employer's retirement plan. A percentage of money comes out of your paycheck, and many employers contribute to match a portion (or all) of your contribution as well. If you don't have this option where you work, you can set up a separate savings account and have the bank automatically transfer a percentage of your net income into that account every payday.
Begin With the End in Mind
Short-term financial goals are great for daily motivation. However, each dollar you spend on a new car or a vacation takes money away from what will soon become an important long term goal: your retirement. When it comes to retirement savings, the more you set aside today, the less you will need to save in the years to come.
Before opening a retirement savings account, weigh the options between a traditional IRA and a Roth IRA. A traditional IRA may allow you to deduct your contributions on your tax returns. However, if you are not yet in a high tax bracket, you may want to consider a Roth IRA, which may allow you to take out money before retirement without paying penalties.
For example, if you set aside $100 every month beginning at age 20, you will have $313,040 at an 8 percent return when you are 60. If you wait until you’re 40 to start saving, you will only have $55,380 by age 60.
Leverage Your Investments
Once you begin saving, the next important step is to get that money working for you. Thanks to changes in technology over the last few years, millennials have more options for investing their money than their parents did. One of the latest trends in investing is the use of robo-advisors. Computer algorithms make investments on your behalf, based on your goals and risk profile, giving you the power of a personal financial advisor at a fraction of the cost. You can begin investing with as little as $10, depending on the service you use.
Watch Your Credit Score
Every year, you're entitled to download a free copy of your credit report. This report is what creditors use to determine whether you're eligible for loans or not, and even what interest rates you might pay. Review your credit report every year and check it for inaccuracies. For example, a creditor may have mistakenly reported an account closed that you still have open, which could negatively impact your credit score.