When you think of the term “net worth,” you might imagine middle-aged people investors discuss the stock market or their real estate portfolio. But many financial experts agree that the best time to start thinking about your net worth is in your twenties.
The future of finance: Gen Z and how they relate to money
After: 5 things you need to do when your savings hit $50,000
These years provide an early opportunity to pay off debt, increase your income, and start investing, setting you up for future financial success.
Start saving and investing as soon as possible
According to a recent GOBankingRates survey, the majority of Gen Z (43%) have yet to start investing.
Among young people who invest, the majority (24%) put their money in real estate. Other popular investment strategies among Gen Z include stocks (22%), 401(k) or IRAs (17%), mutual funds or ETFs (14%), and cryptocurrency ( 11%).
Choosing to invest at a young age requires seeing the financial big picture, which can be difficult, said Benjamin Koval, CFP and founder of SoundPath retirement strategies.
“Everyone wants to have a financially healthy retirement, but many are too caught up in the day-to-day of their lives to prepare well,” he said. “While it’s true that certain short-term priorities need to be addressed first, the effects of compound interest make saving early much more beneficial than trying to catch up later in life.”
For this reason, he recommends young people set up automatic transfers to retirement accounts and other investments. It’s easier to start investing a set amount of money — and stay consistent — if you never see it in your bank account to begin with, he noted.
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Develop good financial habits now instead of later
Rising inflation has put a strain on the finances of many people, including Gen Z. GOBankingRates found that most young people (nearly 27%) spent 21% to 30% of their income on rent or housing, more than 18% were spending 31% to 40% of their paycheck and a further 18% are spending 41% to 50%.
These high housing costs may not leave much room for savings and investment. It is therefore even more important that young people develop sound financial habits now.
“Be aware of how you spend your money,” said Carlos Legaspy, wealth manager and CEO of Insight Securities. “Often shopping is impulsive and you arrive at payday not knowing where your previous paycheck went.”
To make it easier to save, Legaspy recommends making a game out of it. Look for the satisfaction of finding discounts, cutting coupons, and getting great value for your hard-earned cash.
“Bottom line,” he said, “you have to spend less than you earn.”
Save half your raises for your future self
A Common Mistake Andrew McNair, Investment Advisor and President of SWAN Capital – sees young people being overly cautious about investing in their 401(k)s.
“If you’re generally happy with your current lifestyle, I recommend splitting every future raise — 50% for yourself now and 50% for your ‘future self,’” he said. “Then set an Apple or Google reminder every six months to increase your 401(k) by 1% and remember to rebalance your allocations while logged in.”
Take advantage of recessions
It’s easy to panic when a recession sets in, especially if you’re young with student loans, high rent or mortgage payments, and mounting responsibilities.
But instead of fearing recessions, McNair encourages Gen Z to view them as opportunities.
“If you have a 20-year investment horizon, put on blinders during market declines,” he said. “Think of recessions as opportunities to buy additional stocks while selling.”
Beware of fad investments
It can be fun to sit down with your friends and discuss the latest investing fads, but watch out for “pub tips,” Koval warned.
“The world is full of people sitting at the local bar talking about how the uranium mines off the coast of Peru are the best investments you can make,” he said. “Worse still, the many sales organizations try to convince the world of how they have the inside knowledge to make you rich. There may be a place in an investment strategy for speculative investments – risk tolerance permitting – but most of your funds should be in more traditional vehicles.
As a youngster, time is your friend, which makes more traditional investments like the S&P 500 a safer option than current trends like Bitcoin, he added: “Don’t get so caught up in a fad. that you are exposing yourself to unnecessary risks. ”
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This article originally appeared on GOBankingRates.com: Gen Z: Here’s how to start building your net worth right now