Young adults may think retirement is a far-off reality, but in truth, it’s never too early to start planning for one’s golden years. Proper preparation takes on greater importance in light of the fact that younger workers will have less access – if at all – to employer-sponsored pensions than their parents and grandparents. Studies have also indicated that Millennials are worried about their ability to fund a comfortable retirement, and many are forgoing a financial plan altogether.
Worry no more, Millennials. There are steps you can take to gain fiscal health that aren’t so daunting, and may not even require the advice of a financial planner.
For those just out of college or 10 or more years into their career, MetLife has devised 10 guidelines to help them patch together a financial plan for now and the future.
“Smart Money Moves in Your 20s and 30s” is part of MetLife’s workplace-based PlanSmart Financial Education series. “As the economy evolves, it’s more important than ever for young adults to plan for their futures and understand the ‘time value’ of preparing for their future,” said Jeff Tulloch, vice president, MetLife, in statement.
The 10 personal finance tips range from the obvious (participate in 401(k) plans and purchase insurance) to the “eat your spinach” variety (pay down debt). Specifically, MetLife advises:
- Look at your paycheck: Calculate exactly how much you take home every month after taxes and deductions.
- Create a budget: Once you know your monthly income, set a budget. Separate your “needs” from “wants” and live within your means.
- Know the “28/36 rule”: Allocate approximately 28 percent of your monthly budget on housing (rent, mortgage) and keep total debt costs (student loans, credit card payments, etc.) within 36 percent of monthly income.
- Save at least $50 a week for the unexpected: Put this money in an account that’s strictly for emergencies.
- Become a millionaire by age 65: Start saving and investing as early as possible. As a younger person, time is on your side and even the smallest money moves are beneficial due to the power of compounding.
- Sign up for your employer’s 401(K) or 403(b) plan and get the match: If you have the opportunity to invest in a 401(k) or 403(b) plan through your employer, do so. Even small amounts of money invested in your 20s can grow into significant amounts.
- Start a Roth IRA and contribute: If you are able to save more, there are many advantages to opening this kind of account, such as accessing money without penalty before retirement.
- Get insured: Protect yourself in the case an unforeseen circumstance occurs. The general rule of thumb is to secure 10 times your salary in life insurance and 65 percent to 85 percent of your net pay in long-term disability insurance.
- Aim for 760 or higher: This is the credit score you need to qualify for the best interest rates on a new home or a car. Paying bills on time and paying down debt will help you maintain a strong credit score.
- Develop distinct savings goals: Whether it’s a short-term goal (vacation) or more long term in nature (retirement or a new home), determine how much you need to reach it and create a savings timeline to get there.