Young adulthood is an exciting time of life where you are adapting to big changes. Your days are often full – working on your career, settling into your own place, and facing the trials and tribulations of survival without a parent figure at your side. But while you are managing these moving pieces, finding the time and money to plan your future finances is a very worthwhile endeavor. Building wealth early helps you maximize your returns and sets you up for a comfortable adult life.
Here are the steps you can take now to start building wealth as a young adult.
Start a Budget
Starting a budget is the foundation for creating wealth. A reliable budget helps you understand how much money you are spending compared to how much you are earning. This gives you the big picture of your finances. With this information, it becomes possible to set money aside to grow without worrying about making ends meet in daily life.
Your budget can be as complicated or as simple as you want. Once you have a good idea of what your monthly expenses and income are, you can safely dedicate money from each paycheck towards the purpose of saving and investing for your future.
Getting started with a budget doesn’t need to be difficult. We partner with Banzai Financial Education to give you free access to financial education resources so you can be confident when working with money. The Banzai Budget Calculator can help you start budgeting easily.
Many young adults carry debt with them, usually originating from school loans, car loans, or credit card purchases. Paying off debt is very beneficial for your future finances. The accumulated interest of your debt chips away at your earnings, weakening your ability to save. While it can feel almost painful to commit your hard-earned money to paying off debt, those payments will reduce the interest you have to pay in the future and put you on the right path.
Use the Banzai Debt Coach to tailor your debt reduction plan to your unique situiation.
Create a Plan
Creating a plan for how you are going to save puts you on track for building wealth. A well-rounded savings plan outlines how much money you are contributing and where that money is going. A diverse plan balances your various contributions to maximize investment returns without compromising safety or liquidity. A healthy mix of short and long-term investments, savings accounts and CDs, and a robust emergency fund are all important pieces of your plan.
Savings accounts and certificates of deposit (CDs) are important tools for growing wealth. They are the strong, stable assets that form the foundation of your savings. Even if you’re not ready to explore more complicated investments yet, you can start simple with accounts like these, and our Video Connect banking service brings those services right to you. A conversation with a trusted banker can help you determine what accounts are right for you, and you can open them all from the comfort of your home or office.
Start Investing Early
Once you have a comfortable understanding of your finances, it’s time to invest what you can spare. The power of compound interest benefits early investors the most. This is especially important for long-term investments, such as IRAs and 401k plans. Long-term investments for later life and retirement are designed to be difficult to withdraw money from, and often have fees for early withdrawals. They are best used with the intention of allowing money to grow, not for using as emergency cash. Abiding by your budget and savings plan will help dictate your retirement contributions so you don’t have to worry about overleveraging your resources.
Consult a Financial Advisor
Planning your finances can be complicated. Some people are excited by the task, but for many it feels too difficult to invest independently. A financial advisor can help you to properly allocate your savings and investment safely. They can help you execute a plan that balances your goals with realistic expectations. A good advisor will work with you to create a unique financial portfolio for your situation.
In conclusion, building wealth as a young adult is all about creating a budget and executing a savings plan. Eliminating debt will help you save more money and reduce your current expenses. The money that you put into your investments, or to pay down your debt, will return greater value to you than just saving it would. A balanced plan will leave you with a healthy amount of working capital, as well as strong investments that will grow over time. With a commitment to saving you can maximize your long-term returns and set yourself up for a wealthy future.