So you’re fresh out of college and starting an entry-level job. Or maybe you just started a small business. Either way, you’ve just started earning your own money for the first time in your life, and making big financial moves does not seem like the most urgent thing in the world.
The opposite could not be truer. It’s never too early to start making smart financial decisions to build a stable future, especially in increasingly uncertain financial times such as a pandemic and a global recession. When you’re young, time is your biggest asset when it comes to growing your wealth.
Here are seven smart financial ideas for young people who want to start today.
Invest in your retirement.
When you’re young, your greatest financial asset is time. At this stage, your primary objective for your long-term savings should be growth. You have at least 40 years over which to acquire retirement savings.
Most of or all your long-term savings should be placed in some equities, such as common stocks and stock mutual funds. It is vital to increase your purchasing power in your retirement savings because you will need every dollar you can muster after you stop working.
Get insured.
With our current COVID-19 situation, many young people are looking into getting life insurance, especially those with children and significant others. Neglecting insurance can be a costly mistake, as it can come in handy when an accident or illness occurs, and you and your family are in a financial bind.
Pay off debt, and avoid racking up even more debt.
A huge debt left unpaid can follow you for the rest of your life. It can hold you back from doing the things you want with your money. There are ways to do this even with a small income.
While it’s vital to pay off all your debts as soon as possible, it’s also equally important to avoid acquiring even more debt. Be smart about how you use your credit card. It’s a great way to build a good credit history, but only when used right. Make sure you keep your total usage below 30 percent of your limit at all times and pay your bill off on time every month.
Explore the possibility of owning real estate.
In a global recession, it’s tempting to keep all of your money in the dungeon, at least until things settle down a bit. Buying property in the time of COVID-19 may seem scary, but there are benefits to investing in a home or a condo unit.
With lockdowns in place, more and more people are staying home. Given this situation, some may be considering moving out and finding their own place to avoid mass gatherings or infecting their most vulnerable family members. Many condo developers have young adults and growing families in mind, so there will always be a demand for these rentals, regardless of the state of the economy.
Owning property and renting it out can be a smart way to earn some passive income.
Keep your risks low with index funds or ETFs.
Exchange-traded funds (ETFs) and index funds are great for newcomers. They are passively managed, don’t require high investment costs, and yield strong long-term results.
Consider investing in several of these funds within your 401(k) or IRA to build a diversified portfolio that includes U.S. stocks, international stocks, and a small allotment of bonds.
Index-investing is still a smart financial move, even during a recession. Especially in work-from-home ETFs, as they could have staying power even beyond the pandemic.
Set aside an emergency fund.
It’s always a good idea to set aside an emergency fund, but especially during a recession. Unforeseen expenses always pop up, especially as time goes by and as we grow older. Make saving your priority by setting up automatic transfers every time you receive your salary.
Learn the basics.
Like anything else new, the first step you have to overcome is your lack of knowledge. Before you make some big financial decisions, whether it’s investing or purchasing, it’s important to learn the basics of the financial move you’re making. Do your due diligence, make a risk analysis, and determine if it’s a risk worth taking. Watch the trends closely. Consult also with financial experts and advisers.
Bottom Line
Everyone wishes for a booming economy, one where we can work and invest and receive high returns each time. But that’s not our current situation. Now, more than ever, young adults need to be smart about where they put their money. Their future selves will thank them one day.
