Tuesday, October 2, 2012, AM | Leave Comment
When you are young, you can take risks in your financial life. If it’s calculated risks (chances taken after careful estimation of the probable outcomes), then your gains may be more and your losses will tend to be minimal.
We humans have developed individual attitude and mindset and it has taken us quite a few generations. It’s quite hard to change them overnight.
If you are used to spending and not saving, it’s hard to adjust your savings and investing habits overnight. Even if you are in the habit of savings and investing, life, just by its pure nature, can get in the way of the best laid plans.
However, you must start sometime and for young adults, it might be the best time to start now – today if possible.
Besides starting earlier in saving for retirement (401K and IRA), you can invest aggressively in stocks, may be not 100% but at least 85% and the rest 15% in bonds.
Many young adults are already saving some percentage of their take home pay. But there are many who cannot save because of their low income. They are barely surviving. However, they must strive to not get into the kind of debt that they cannot get out of.
But there are folks who make good money and they are able to save if they want to but don’t. That’s the kind of folks who must save not just for today but for retirement as well.
To start off as a young person, there are three major steps you can take to be hopefully secure financially later in life when it’s time for you to say goodbye to your active working life.
Increase your savings
Increase retirement contribution
First off, you should take part in your company’s 401(k). If your employer contributes to your plan (a matching plan), your goal should be, at the least, to save enough in your 401(k) to match the employer’s contribution.
Minimize medical cost
As we all know, medical costs can be a major expense for everyone and it’s getting more expensive on almost an yearly basis. In order to minimize the effect of this high cost, if you are eligible, you may want to consider funding a tax-advantaged medical account, including a Health Savings Account (HSA).
Talk to the manager of human resources about increasing contribution to your retirement account as well as how to minimize medical costs.
Adjust and tweak your asset allocation
You should have more than one type of investment. Adjust the percentage of your assets in different types of assets and investments. You need to know three major reasons of asset allocation.
Dollar Cost Averaging is perhaps the best method for asset allocation and is key to success when investing.
If you are afraid and hesitant of making investment decisions on your own and many young adults are, then I suggest you find a good financial adviser.
Start Paying down your debt
You may have student and other types of loans. Most young adults do. Paying down your debt may be the best financial decision you will ever make, in addition to increasing your savings, of course.
Be quite aggressive in paying down your debt. You are losing money in interests which you should have been investing.
Start focusing on paying down high interest rate debt first. This can turn out to be quite beneficial in your personal finances.
In a Nutshell
Conquering your fear of investing will turn out to be the best asset in your person. There may be opportunities in the market right now that can help you achieve your financial goals.
However, you ought to be in it for the long time to come. You must not panic at the first sign of market coming down. Folks who have stayed in the market for longer period of times are the ones who have gained.Facebook.com/doable.finance