Faced with shifting markets and mounting student loan debt, Gen Zers must be nimble. Solid money management skills can help overcome these challenges and grow personal wealth. Take a look at these three tips that can help you set up a stronger financial foundation today.
Gen Zers are entering the workforce amid a rapidly shifting economic landscape, so they must be agile when facing this fluid environment by building strong financial foundations. That said, the outlook for Zoomers is better than it might seem. In fact, with the right knowledge and money management skills, you can secure a prosperous financial future that grants you long-term stability.
There are certain moves you can make now to build wealth over time. It’s impossible to overstate the value of building a financial foundation from the beginning of your career. So, let’s make the most of your early start with three strategic principles.
1. Use Short-Term Saving Strategies That Work
Most people center their budget around long-term goals, but don’t forget to account for what you want and need in the near future.
Plan short-term financial goals such as retail purchases and vacations in conjunction with monthly expenses like rent. Budgeting accordingly will help you keep pace with your long-term goals while enjoying the occasional splurge.
Saving is one of the most important money management habits to master. First, create a regular savings plan that factors in your habits. For example, if you have difficulty saving, automate it to go directly from your paycheck to a separate account.
There are many different types of savings accounts, so choose one that best aligns with your short-term goal. A high-yield account will accrue the most interest, so you meet goals faster. However, the account should be easily accessible, as many of your short-term goals will be just a few months out.
Money market accounts generally have excellent rates and sometimes offer debit cards or checks. Additional options like a certificate of deposit (CD) account, in which you invest a set sum for a predetermined amount of time, are also suitable for planned purchases because they have high yields.
Finally, contingency plans are crucial—nothing derails a budget like an emergency. At some point, you’ll probably need to dip into your savings to cover an unplanned expense. You can avoid this by making an emergency fund part of your budget and overall plan.
2. Avoiding Common Financial Pitfalls: Smart Spending, Student Loans, and Debt Management
Taking on debt is sometimes necessary, especially for Zoomers needing student loans to obtain their degree. However, debt can drown short- and long-term goals without smart money management skills. So, avoid accumulating unnecessary, high-interest credit card debt and have a clear plan for managing loans you’ve taken out.
Include debt repayments in your monthly budget and account for their costs in your emergency fund. When you factor in student debt, your expenses may outweigh your income—don’t panic. You can overcome debt with careful management. It might also be worth consolidating multiple loans into a single payment to simplify your budget.
If you have federal student loans, check to see if you qualify for forgiveness. Public servants, teachers, and individuals with permanent disabilities may all receive debt forgiveness, although others may also be eligible if their school closed or engaged in misconduct.
If loan forgiveness doesn’t apply in your case, additional income streams could help you overcome your debt. Also, remember the interest on your student loans may be tax deductible.
3. The Power of Patience: Building Wealth Over Time
Investing is the key to building long-term wealth. Over time, inflation can reduce the buying power of your savings. So, the best way to retain and gain value is to invest in the stock market.
Of course, you must know the risks. The invested money is subject to the whims of the market, meaning your emotions rise and fall with the market causing you to make decisions that could negatively impact your holdings. Some investors take more risks, while others play it safe. Your personality will likely determine your investment strategy.
Let’s look at the different types of investments you can use to reach long-term goals:
- Stocks are shares of ownership in a company. Among other factors, a business’s success or failure often determines their share value.
- Bonds
- 401(k)s and IRAs are tax-advantaged retirement accounts that can help you save for the future with deductible contributions and tax free savings in the future
- Mutual funds are pooled securities. They allow you to buy into diversified portfolios of stocks and bonds managed by the fund company.
- Long-term CDs are just like their short-term counterparts but come at an extended duration with higher interest rates.
- Exchange traded funds (ETFs) are portfolios of securities, like mutual funds but trade like stocks.
Develop Your Money Management Skills with a Financial Partner
Solid money management skills can help you overcome these challenges and grow personal wealth. These skills can be improved with the support of skilled a financial partner.
The experts at Bank of Blue Valley, a division of HTLF Bank have the experience you need to help you manage debt, create a livable budget, and plan for a prosperous future. Your unique situation deserves individual attention, so speak to a professional who can address your specific needs.
Reach out to Bank of Blue Valley, a division of HTLF Bank today to get a head start on your financial foundation.
This material has been prepared for informational purposes only, and is not intended to provide and should not be relied on for investment, legal or tax advice. Products offered through Wealth Management are not FDIC Insured, are not bank guaranteed and may lose value.