Smart Money Moves Every Millennial Should Make Now
This article provides clear, practical steps for anyone ready to take control and push towards prosperity. Read on for intelligent money moves tailored just for millennials like you.
1. Build and Maintain an Emergency Fund
In today’s unpredictable financial climate, building and maintaining an emergency fund is the cornerstone of a solid personal finance strategy, especially for millennials. Bankrate’s 2024 report reveals a heartening trend: nearly a third of U.S. adults are bolstering their emergency savings—the highest since 2020.
An emergency fund is about paying for unexpected obstacles without spiraling into debt. Imagine confronting car repairs, health emergencies, or job layoffs. With an emergency fund, you can cover these without relying on high-interest credit cards or loans, preserving your financial well-being.
Beyond emergencies, this financial bedrock allows you to make choices without stress. It means seizing an investment opportunity or pursuing a goal without jeopardizing your fiscal health. Your emergency fund isn’t just about what you’re protecting—it’s also about what you could gain.
Statistically speaking, less than half of millennials could handle an unexpected $1,000 bill from savings alone, as per a December 2023 survey. In contrast, 59% of baby boomers could. The goal? Aim to stash away enough to cover three to six months of living expenses. This is your safety net—make it strong. Consider some critical steps to building your fund:
- Start small and grow: Even a minimal start can set you on the path toward ample savings. Begin with a small savings goal and gradually increase it to cover several months’ expenses.
- Make regular contributions: Treat your emergency fund as a non-negotiable bill you must pay monthly. Automating your savings can help you stick to this commitment.
- Keep it accessible but untouched: Park your fund in an account that yields interest but remains readily accessible, like a high-yield savings account. Avoid dipping into these savings for non-emergencies to preserve the fund’s purpose.
- Reassess regularly: As life changes, so should your fund. Adjust your savings accordingly as your income rises or debts fall.
Millennials are no strangers to financial hurdles, having weathered the aftereffects of the Great Recession. While a segment of this generation has achieved financial stability, many continue to grapple with significant economic stressors. From the burdensome shackles of student loans to a precarious housing market, and the recent sting of rising inflation, millennials have faced an array of fiscal trials.
Having an emergency fund helps in reassuring that when the unexpected strikes, you’re not at the mercy of creditors—you’re equipped and ready. Building an emergency fund isn’t an overnight achievement, but with consistency and dedication, you can establish a shield against life’s uncertainties.
2. Maximize Retirement Savings
A. The Rewards of 401(k) Employer Match
One of your best tools for retirement is a 401(k), a tax-advantaged plan that lays the foundation for your future nest egg. The idea is to pay into this account throughout your working life, and these contributions are often matched by your employer, amplifying your savings.
According to a report from the Investment Company Institute in September 2023, approximately 70 million Americans are actively contributing to 401(k) plans, with these investments amassing around $7 trillion in assets.
The secret ingredient to growing your 401(k) is taking full advantage of employer contributions. It’s essentially free money, which, when combined with your own contributions, can significantly boost your retirement funds. Make sure to contribute at least enough to get the full match; this reward is too good to pass up.
When managing your 401(k), gradual increments can make a sizable impact. Start with what you can manage, then focus on increasing contributions over time. Tapping into raises or bonuses is a savvy way to up your 401(k) contributions without feeling the pinch.
B. Broadening Your Tax Benefits with IRAs
Individual Retirement Accounts (IRAs) come in two flavors: traditional and Roth. Each has its tax benefits: Traditional IRAs offer an immediate tax deduction, potentially lowering your taxable income in the year of contribution. In contrast, Roth IRAs, while funded with post-tax dollars, provide tax-free withdrawals in retirement, empowering you financially for those golden years.
Consider this: The tax advantage you snag from a traditional IRA is influenced by your income, filing status, and whether a workplace retirement plan covers you. On the other hand, Roth IRAs, with their promise of tax-free retirement withdrawals, can be a powerful tool, even without the upfront tax deduction.
3. Invest Beyond Retirement Accounts
Diversify with Health Savings Account (HSA)
Beyond the 401(k), there’s another promising option: the health savings account (HSA). HSAs provide a tax-efficient way to pay for medical costs now and in retirement, and they can also double as additional investment accounts, offering another avenue for retirement savings.
If you’re enrolled in a high-deductible health plan (HDHP), you can contribute pre-tax dollars to an HSA and use the funds to pay for qualified medical expenses. The real magic happens with the account’s triple tax advantage: your contributions are tax-free, they grow tax-free, and withdrawals for medical costs are untaxed.
But here’s the retirement bonus—after age 65, you can withdraw for any reason, penalty-free (though you’ll pay income tax on non-medical withdrawals, similar to a traditional IRA). You can also invest your HSA funds like a 401(k) or IRA, allowing them to grow over time. Hence, an HSA doesn’t just save you money on healthcare; it can swell into a significant retirement fund, covering medical and other costs in your golden years.
Expand Investment Horizons
Once the max has been contributed to your IRAs, or if you seek alternate investment routes, it’s time to explore broader realms. Various non-IRA investments can supplement your portfolio.
- Municipal Bonds: These low-risk investments are tax-exempt and can provide a steady income leading up to retirement.
- Fixed Index Annuities: They offer protection against market downturns and the potential for modest returns, though be mindful of the liquidity and withdrawal age restrictions.
- Universal Life Insurance: While debated, they can be structured for tax advantages, allowing growth and access to funds with tax-deferred perks.
Non-Retirement Vehicles for Long-Term Growth
Beyond the safe bounds of IRAs and low-risk options, making strategic investments in areas like real estate, business, or alternative products can grant access to potentially higher returns.
Remember, with opportunities like these comes greater risk, and they often entail complex tax structures and liquidity considerations. This is where it could be wise to consult with a financial advisor who can provide gentle guidance, tailoring your investment strategy to your unique financial landscape. A professional advisor can help you cultivate a diverse and dynamic portfolio that supports your dreams and financial well-being.
4. Secure Your Future with Estate Planning and Insurance
A startling statistic from Caring.com‘s 2024 Wills Survey reveals that only 32% of Americans have a will—a decline from the previous year, highlighting a significant gap in estate planning. This means 68% of people may inadvertently leave their fate and that of their assets to state laws and courts to decide in the event of their incapacity or death. Having a will clarifies your wishes, sparing loved ones from additional emotional and financial stress.
Health Care Directives
Along with wills, health care directives are pivotal in defining your desired medical care if you cannot voice your decisions due to illness or incapacity. This ensures personal care according to your values and relieves family members from making these tough choices on your behalf.
Insurance Considerations
With less than half of millennials owning life insurance, many are deterred by financial constraints and a bewildering insurance landscape. Yet, insurance planning is crucial, especially for those with dependents. Strategic choices in life, disability, and property insurance policies mitigate risks and secure your family’s financial well-being.
Acknowledging the “what ifs” is more than prudent for millennials navigating major life events—marriage, home-buying, or starting a family —it’s necessary for a secure future. Estate planning and robust insurance coverage are not the realm of the wealthy alone; they are foundational moves every financially conscious millennial should make.
Start Putting These Financial Tactics to Work
Securing a prosperous financial future demands more than just wishful thinking. It requires decisive actions and smart strategies that resonate with your ambitions and life’s timeline.
If you want to bring a sense of control and clarity to your finances, sometimes starting is the hardest part. But you’re not alone. Working with a financial advisor can be your game-changer—think of them as a personal finance coach who’s in your corner, helping you strategize, tackle taxes, and grow that nest egg. With an advisor’s guidance, you can confidently navigate the financial maze, ensuring your moves are always leading you closer to those big life dreams.