Your twenties are the perfect time to save and invest.
Do it now, and you will have a great ally—time —on your side. Think about doing the following things if you’re not doing them already.
1) Create a budget. Do you know how much you spend every month on food, transportation, housing and utilities? If you’re not tracking your spending, you are likely underestimating how quickly day-to-day expenses can add up. There are online tools that can help you establish a budget, or you can use a simple spreadsheet to track your spending. Understanding how much money you take in each month and where it is spent is a foundational wealth building habit.
2) Live below your means. Once you’ve documented where your money is going, it will be easier to identify areas where you can cut spending, like clothes shopping, entertainment expenses and eating out. Living large and buying expensive “stuff” that depreciates can leave you drowning in debt. Spending sensibly can help you grow your emergency fund, and, by extension, your net worth.
3) Establish an emergency fund. An emergency fund is a relatively liquid sum of money that is easily accessible in case something unexpected happens, such as a medical procedure, job layoff or expensive car repair. The general rule is that an emergency fund should cover 3 to 6 months of your expenses. Setting up an emergency fund will give you peace of mind and may also prevent you from putting emergency expenses on high-interest credit cards.
4) Put money into a retirement plan. Save and invest through a 401(k), a 403(b), a Roth or traditional Individual Retirement Account—whatever is available to you; any tax-advantaged retirement account is better than none. If your employer doesn’t offer one, start an IRA on your own. If your employer does offer a retirement plan, and they match funds, make sure that you are taking full advantage of the employer match.
5) Whittle away at your debts. The less money you owe each month, the more you potentially have to save or invest. You can “pay yourself first” with it, rather than paying those you owe first and yourself second. Make sure you’re making the minimum payments on all of your debts. If you can put extra money towards your debts, focus on high-interest debts first.
6) Last but not least, get help from a financial advisor. This way, you can evaluate your progress and determine how far along you are toward that first million. Making the right decisions now could leave you wealthier in the future.
This material was prepared by LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.