As a millennial, you faced the Great Financial Crisis as a young adult, but are now moving up in your career and earning more. Although you’re still young and some of your big financial goals are far out, planning for those now is vital. Let’s dive deeper into two reasons you should start planning for the future today, then look at some tips to prepare for those goals.
Here’s why you should plan now
Millennials like you have one distinct advantage when it comes to financial planning — time. Many large financial goals are years or decades away, which creates two distinct advantages for why you should start planning now:
- More time to change course: The earlier you plan for the future, the more time you have to alter your goals and actions as life goes on. For instance, if you run into an emergency that drains your emergency fund and puts you into debt, you have more time to adjust your savings to restock that fund and pay off your debt.
- Compounding: Compounding is when your money earns money through interest or investment gains. The earlier you save and invest, the more time your money has to make more money for you. For example, if you earn a 5% yearly return on a $1,000 investment, you’ll have $1,050. Earning another 5% the following year on your now-$1,050 investment turns into $1,102.50.
4 ways millennials can plan for the future now
Now that you understand the importance of planning sooner rather than later, here are some ways you can get ready for your financial future:
#1: Max out retirement contributions
If you’re employed, take advantage of your workplace contributions. Many employers offer a “match” up to a certain amount. Maximize that match because it’s free money. After that, consider opening an Individual Retirement Account (IRA). Traditional retirement account contributions are pre-tax, but withdrawals are taxed in retirement. Meanwhile, Roth IRA withdrawals are tax-free in retirement, but contributions are not tax deductible.
#2: Get a life insurance policy
If you’re planning on having a family or have one already, life insurance can be a key component of your financial plan. It pays your beneficiaries a death benefit if you pass away while the policy is active, helping them replace your income and pay off debts.
As a millennial, you can take advantage of the lower rates offered to younger policyholders and lock in an affordable premium — especially if you get a permanent life insurance policy, which lasts a lifetime.
Permanent life insurance also lets you build tax-deferred cash value, which you can withdraw and borrow against when it grows large enough. You also get this cash value minus surrender charges if you surrender the policy. Compare life insurance quotes online to find a policy that works for your coverage needs and budget.
#3: Build credit
Strong credit helps you lock in the best rates on mortgages and auto loans. It also helps you get better credit cards and refinance existing debts at lower rates to save money. Here are some quick tips to build your credit score:
- Pay all debt payments on time
- Keep credit accounts open
- Keep credit balances low
- Have a diverse mix of loans and credit cards
- Avoid frequent credit applications
- Check your credit report annually and dispute errors
The simplest way to build credit is to use your credit cards on your usual spending, stay within budget, and then pay that bill off every month. This will help keep you out of debt and knock out most of the tips laid out above.
#4: Get a financial advisor
Financial advisors can help you craft a financial plan that works for your specific situation and goals. Once the plan is in place, they also assist with following that plan and meeting those goals. In addition, they can help you explore additional retirement account options, life insurance policies, credit-building tactics, and more.
Prepare early and reap the rewards
As a millennial, you have time on your side. Investing and saving now lets you maximize the power of compounding, and if your plans/goals change, you can course-correct if necessary. Some of the most critical steps include upping your retirement contributions and getting a life insurance policy to ensure you and your loved ones are covered. After that, focus on building credit and consider working with a financial professional. Follow these tips, and you’ll be on your way to hitting your financial goals.
