Creating a Financial Plan
JULY 13, 2017
So where do you begin?
“You should patiently build a financial situation to the point where you can have things — like a house and a car — while also maintaining a long-term financial plan,” says Patrick Payne, assistant professor of finance and financial planning at West Carolina University.
Here are three ways you can get started.
1. Set Up an Emergency Fund
To cushion the financial blow from a possible job loss or medical emergency, Payne recommends you:
2. Start Saving for Retirement
“When you’re in your 20s and just getting started, retirement may feel light-years away,” says Ken Burdick, senior product specialist at American Funds. “The trick is to stop thinking of [saving for retirement] as an ‘optional’ part of your budget. Treat it like any of your other mandatory bills.”
The vast majority of millennials are already getting the message. According to American Funds’ “Wisdom of Experience” survey, eight in 10 believe that saving a portion of their monthly income will play a key factor in helping them achieve a secure retirement.
If you don’t have an employer contributing to your retirement savings, you should consistently allocate a portion of your earnings to an alternative retirement savings option such as an individual retirement account (IRA). With many years ahead in which to save, young investors can focus on growth-oriented investments and take on a bit more risk than those closer to retirement.
3. Stick to a Debt Repayment Plan
Getting a handle on debt in your 20s is important so that loan obligations don’t prevent you from making other investments later in life. So whether they are related to college, credit cards or a car, work out a way to make your payments on time.
Time Is on Your Side
“The young should take advantage of the extra time they have to invest,” Payne adds. “If they do, they will have far better investment results than they could get if they wait to invest later in life.”
What's next: 3 Smart Money Moves in Your 30s
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