Building Financial Security for Gen Y: Laying the Groundwork

by Sophia Bera on October 30, 2013

Use Your Money to Match Your Values

Keep living like a college student while you build a solid financial foundation.  By living below your means and not inflating your lifestyle as your salary grows, you will be able to reach your financial goals much faster.   Try to keep your fixed costs as low as possible so that you can save for the things that matter most in your life.  Go through your monthly spending and look at each item.  Then ask yourself, “does this purchase match my values?”  If not, work on curbing your spending in that particular area so that you have more money to spend on fulfilling your goals and dreams.

Establish An Emergency Fund

Everyone needs an emergency fund because inevitably there are going to be those unexpected expenses that come up.  Start by saving $500, then work up to $1,000 and keep saving until you have 3-6 months of your income set aside for emergencies.  Set up a direct deposit from your paycheck so that a set amount goes from your paycheck to your savings account and never hits your checking.  Start with $100 a paycheck and keep increasing this amount as your salary rises.  Think you don’t need an emergency fund?  Check out My $1,000 Day.

Pay Off Credit Card Debt First

Consumer debt will eat away at your cash flow each month, so start by attacking your credit cards first!  Set aside at least $1,000 in emergency savings and then allocate as much as you can towards your credit cards each month.  The quickest way to get out of debt is to increase your income!  Pick up a second job, freelance, babysit, mow lawns, build websites, sell things, etc.  Do whatever you need to do to earn extra money and allocate all of this extra income towards paying off your debt.  The other bonus is that if you spend more time working, you’ll likely have less time to go out and spend money, so by increasing your income you’ll also decrease your spending!  It’s a win-win.  If it’s student loans that concern you, start by reading my article on How To Prioritize Student Loan Debt While Working Towards Other Financial Goals.

 Start Saving for Your Future – Today!

Our retirement is going to look very different than our parents’ retirement.  But our parents’ retirement looks extremely different than our grandparents’ retirement, and that’s ok.  Just because we can’t envision our retirement, doesn’t mean we shouldn’t start saving for it.   Save for the future now, so that you have options later.  (Start here: Should I Contribute to a 401(k) or Roth IRA?)  I always recommend that people sign up for their work retirement plan if they are eligible for a company match.  (Talk to your HR department if you are unsure if your employer offers a match).  If so, make sure you contribute at least enough to receive your FULL company match.  After that, I generally recommend that people start a Roth IRA at a discount brokerage firm.  Each year try to contribute a bit more to your Roth IRA until you’re contributing the max (currently $5,500 per year for 2013).  If you’re already doing that, then it’s time to increase your contributions in your employer retirement plan.  You can contribute up to $17,500 per year (for 2013) to a 401(k) or 403(b) plan.  Set a reminder in your calendar to increase your retirement plan contributions by 1% every 6 months.  By contributing $100 a week towards a retirement account and earning a 7% rate of return, after 40 years, you’ll have over a million dollars!  If you average an 8% rate of return, you could have over $1,500,000!

 Spend Money On Experiences

Many studies have shown that people are happier when they spend their money on experiences rather than material items.  Saving up for concert tickets, going to a play, or planning your next vacation can be some of the best ways to spend your money and offer the most long-term satisfaction.  For example, I love to travel!  I have decided that I’m willing to drive an older vehicle, foregoing a car payment, so that I can go on a big vacation each year.  By setting aside money in a savings account each month for travel, I know that I’m delaying immediate gratification for future enjoyment, so it doesn’t seem as difficult.  David Bach refers to this as a “Dream Basket” and I think everyone should have one.  Your “Dream Basket” should be a separate savings account (not your emergency savings) that you use to fund your dreams!  So go ahead, set up an account to fund your dreams – today!