Doing the right things at the right time
may leave you wealthier later.
What can you do to start building wealth
before age 35? You know time is your
friend and that the earlier you begin saving and investing for the future, the
better your financial prospects may become. So what steps should you take?
Reduce
your debt. You probably have some student loan debt to pay off.
According to the Institute for College Access and Success, which tracks college
costs, the average education debt owed by a college graduate is now $28,950.
Hopefully, yours is not that high and you are paying off whatever education
debt remains via an automatic monthly deduction from your checking account. If
you are struggling to pay your student loan off, take a look at some of the
income-driven repayment plans offered to federal student loan borrowers, and
options for refinancing your loan into a lower-rate one (which could
potentially save you thousands).1
You cannot build wealth simply by wiping out debt, but freeing yourself
of major consumer debts frees you to build wealth like nothing else. The good
news is that saving, investing, and reducing your debt are not mutually
exclusive. As financially arduous as it may sound, you should strive to do all
three at once. If you do, you may be surprised five or ten years from now at
the transformation of your personal finances.
Save for retirement. If you are working full-time for a decently-sized
employer, chances are a retirement plan is available to you. If you are not
automatically enrolled in the plan, go ahead and sign up for it. You can
contribute a little of each paycheck. Even if you start by contributing only
$50 or $100 per pay period, you will start far ahead of many of your peers.1
Away from the workplace, traditional IRAs offer you the same perks.
Roth IRAs and Roth workplace retirement plans are the exceptions – when you “go
Roth,” your contributions are not tax-deductible, but you can eventually
withdraw the earnings tax-free after age 59½ as long as you abide by IRS rules.1,2
Workplace retirement plans are not panaceas – they can charge
administrative fees exceeding 1% and their investment choices can sometimes
seem limited. Consumer pressure is driving these administrative fees down,
however; in 2015, they were lower than they had been in a decade and they are
expected to lessen further.3
Keep an eye
on your credit score. Paying off your student loans and getting started saving for
retirement are a great start, but what about your immediate future? You’re
entitled to three free credit reports per year from TransUnion, Experian, and
Equifax. Take advantage of them and watch for unfamiliar charges and other
suspicious entries. Be sure to get in touch with the company that issued your
credit report if you find anything that shouldn’t be there. Maintaining good
credit can mean a great deal to your long-term financial goals, so monitoring
your credit reports is a good habit to get into.1
Do not fear
Wall Street.
We all remember the Great Recession and the wild ride investments took. The
stock market plunged, but then it recovered – in fact, the S&P 500 index,
the benchmark that is synonymous in investing shorthand for “the market,”
gained back all the loss from that plunge in a little over four years. Two
years later, it reached new record peaks, and it is only a short distance from
those peaks today.4
Equity investments – the kind Wall Street
is built on – offer you the potential for double-digit returns in a good year.
As interest rates are still near historic lows, many fixed-income investments
are yielding very little right now, and cash just sits there. If you want to make
your money grow faster than inflation – and you certainly do – then equity
investing is the way to go. To avoid it is to risk falling behind and coming up
short of retirement money, unless you accumulate it through other means. Some
workplace retirement plans even feature investments that will direct a sizable
portion of your periodic contribution into equities, then adjust it so that you
are investing more conservatively as you age.
Invest
regularly; stay invested. When you keep putting money toward your retirement effort and that
money is invested, there can often be a snowball effect. In fact, if you invest
$5,000 at age 25 and just watch it sit there for 35 years as it grows 6% a
year, the math says you will have $38,430 with annual compounding at age 60. In
contrast, if you invest $5,000 each year
under the same conditions, with annual compounding you are looking at $596,050
at age 60. That is a great argument for saving and investing consistently
through the years.5
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
06072016-WR-1658
Citations.
1 - gobankingrates.com/personal-finance/money-steps-need-after-graduating/
[5/20/16]
2 - usatoday.com/story/money/personalfinance/2015/07/03/money-tips-gen-y-adviceiq/29624039/
[7/3/15]
3 - tinyurl.com/hgzgsw4 [12/2/15]
4 - marketwatch.com/story/bear-markets-can-be-shorter-than-you-think-2016-03-21
[3/21/16]
5 - investor.gov/tools/calculators/compound-interest-calculator
[5/26/16]