Smart Money Moves for Members Under 30

Life in your twenties can be exciting and full of new opportunities. There are many milestones young members might cross off their lists during this period: graduating college, beginning their careers, getting married, and even starting families.

While long-term financial goals might seem a lifetime away, the decisions you make today can significantly impact your future fiscal success. When it comes to building wealth, time is your best friend. The sooner you begin laying the foundation for the future, the better your position will be when you approach your next financial milestone.

Here are several wise money moves you can make in your twenties to prepare yourself for financial events yet to come.

Track Your Expenses

Knowing where your money goes and identifying your spending habits are two crucial skills to master early. The best way to build your savings is to create a budget and regularly monitor your expenses. You can download many free apps to track your spending or review your monthly account statements to get a better picture of your fiscal habits. 

As you age, your financial obligations will increase and become more complex. Having a family, for example, will increase your expenses in both the short-term (childcare, food, housing) and long-term (college savings). Knowing how to track and manage your spending will help alleviate stress and prepare you for any unexpected expenses.

Open a Roth IRA

While retirement may seem a lifetime away, your investments today could significantly impact your golden years. Whether your employer offers a retirement plan or not, you should consider a Roth IRA. This type of investment differs from the more commonly known Traditional IRA.

With a Traditional IRA, you can invest pre-tax dollars into the account now. Upon reaching 59 ½ years of age, the money withdrawn will be taxed according to the rates at that time. This type of IRA allows you to save on taxes now versus during retirement.

A Roth IRA operates the opposite. You invest after-tax money now, and your withdrawals during retirement will be tax-free. Two reasons young investors should consider a Roth IRA are:

  • When beginning your career, your pay will likely be lower than later in life. Investing in a Roth IRA allows you to pay fewer taxes now and have tax-free retirement withdrawals.
  • Tax rates today are relatively low. With increasing government debt, taxes will likely increase in the future. Paying lower taxes today saves you from paying higher taxes in retirement.

Save 15% of Your Income

You should aim to save between 10% to 15% of your take-home pay. While this may seem challenging initially, it’s much easier to get into this habit when you’re just starting out. If necessary, work your way up to 15% over time. For example, create a budget that allows you to save 5% of your monthly income now. Once this becomes routine, revisit your budget and work towards 10%, and so on.

Automate Your Savings

One of the best ways to regularly grow your savings is to “set it and forget it.” With Payroll Deduction or Automatic Transfers, you can put your savings on autopilot. After a while, you may not even notice the money coming out of your paycheck anymore – but you’ll definitely notice your savings balance growing!

Open a Health Savings Account (HSA)

A Health Savings Account (HSA) allows you to save money in an account specifically for future medical expenses. As a young adult, you’re likely very healthy. So while you might not need this money now, you (or your future family) will eventually have medical expenses. The reason this type of account is popular among savers is the triple tax benefit it provides:

  • Contributions made to your HSA are not subject to federal income taxes.
  • Earnings realized on funds within your HSA are tax-free, allowing your funds to grow unburdened by taxes.
  • Withdrawals are also tax-free if they are for eligible (medical) expenses.

Work with a Financial Advisor

When people hear the term financial advisor, they often think about retirement. But a financial advisor can help with all aspects of your financial plan – including both short- and long-term goals. While many goals, such as buying a home or getting married, might be a ways off, preparing for these events now is wise. Creating a financial plan with an advisor while you’re young will provide you with more flexibility in preparing for all life’s upcoming milestones.

Build an Emergency Fund

Life is full of financial curveballs – from the unexpected car repair to the impromptu visit to the ER. Putting money aside for unplanned expenses will provide peace of mind and prevent you from seeking costly solutions, such as high-interest credit cards or payday loans.

When beginning to build your emergency fund, start with small deposits. Get into the habit of putting money aside regularly. As your balance grows, increase your savings rate. You should aim to set aside between three to six months of living expenses in your emergency fund. This might seem like a lot, but if you were to face a sudden job loss, it could hold you over until you find a new job.

Focus on Career Advancement

When starting your career, always be looking for opportunities to grow. Suppose your current position doesn’t offer room to advance long-term. In that case, you might want to find a job where you can grow and expand your financial opportunities. It’s easier to make these moves when you’re young and don’t have the responsibility of a family.

Also, use this time to invest in certifications or educational opportunities to boost your value to potential employers. The more credentials you have under your belt, the more sought after you’ll be, resulting in higher pay and job security.

We’re Here to Help!

While you may be unsure of what your future holds, taking extra steps now to ensure the security of your finances is the best financial move you can make. The earlier you start managing and saving money, the better off you’ll be later in life.

If you’re interested in opening an emergency fund account, automating your savings, or would like to speak to a financial advisor, we’re here to help. Please stop by any of our convenient branch locations or call 801-451-5064 to get started today.

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