Financial Planning in Your 20s

Is youth really wasted on the young? Not necessarily. Our twenties are a time of great opportunity—starting a career, advancing in education, living on our own, perhaps meeting a life partner. This is when many of us establish the financial and investment habits that create a solid foundation for the rest of our lives.

Here are five best practices you can follow yourself if you’re in the cohort, or pass along to your Gen-Y children, grandchildren or other young loved ones to help set them on a course for financial success now and in the future:

1. Invest Early and Often. When you start earning a paycheck, strive to put away at least 10% of your pre-tax income for retirement. This sounds like a lot, but keep in mind that this 10% includes any matching funds you receive from your employer through, say, a 401(k) planA 401(k) plan is a retirement account that a company sets up on behalf of its employees. Both the participant and the employer can contribute to the account. There are two types of 401(k)s, traditional and Roth. Income invested in traditional 401(k)s isn’t taxed while it’s invested, but is taxed when it’s withdrawn. Income invested in a Roth 401(k) is taxed before it’s invested, but no tax is paid when it is withdrawn.. Tap into the power of compounding by investing early and often and allowing the market to work for you.
2. Invest for the Long Haul. You can weather greater riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. with youth on your side; there’s more time to recover from—and capitalize on—inevitable market downturns. You won’t be touching your retirement accounts for decades, so make stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. or stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. funds a major component of your portfolio.
3. Create an Emergency Fund. Can you afford to continue paying your monthly bills if you lose your job unexpectedly? The rule of thumb is to set aside six months of household living expenses to cover you in a crisis. (Our Budget Worksheet can help you plan ahead.)
4. Build Your Credit. Your credit score reflects your financial health and it has an impact on how much you’ll pay for big expenses down the road: Interest rates on home and car loans and insurance premiums are often based, in part, on your credit history. Potential employers may also check your credit history to get a read on your financial stability. Review your credit score and credit reports on a regular basis. We recommend adding at least one credit-monitoring app to your phone—Credit Karma, Mint and Credit Sesame each monitor your credit score and provide tips on improving it.
5. Maximize Company Benefits. Your employer may provide a match on your 401(k) contributions or offer benefits. Take advantage of savings wherever you can get them, including health savings accounts, life and disability insurance, and other perks like discounts on gym memberships or continuing education. Check with your company’s human resources department to make sure you are aware of all benefits available to you.

If you have questions about these tips for twentysomethings or any other financial planning or investment topics, please contact your wealth management team. We are always happy to help.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.