How to Build Wealth While You Are Young: Put Your Money to Work for You

Life tends to throw a lot of changes at young people. You might be a recent graduate, considering marriage, launching a career, looking to buy a house, or starting a family. It’s enough to make your head spin just thinking about it. And how do you even begin to think about the financial aspect of all these changes? How are you supposed to juggle putting money aside for a wedding or a house, paying down student loan debt, and starting to save for the long term?

I can tell you what oftentimes falls last on the priority list: saving for retirement. Retirement? What’s that? Am I right? Well, I’m here to tell you that now is the time to save! When you’re young, you have so much opportunity to start building wealth! Let’s talk a bit about how to tackle it all.

Financial Habits to Focus On

One of the most important things you can do when you’re young is to focus on forming good financial habits from the get-go. Here are a few habits that can help keep you on the right track:

  1. Keep spending in check. Just because you land that awesome job and are getting a steady paycheck doesn’t mean you should go crazy with your spending. If you haven’t already, start creating a budget, and think about what budgeting techniques might work for you. Don’t fall victim to the “Keeping up with the Joneses” concept. Resist the urge to spend just because of what you see others doing.
  2. Be cautious about debt. If you’re thinking about making a purchase that requires you to use credit, please think twice. Ask yourself if the purchase is really necessary. Racking up credit card balances is one of the quickest ways to shoot yourself in the foot when it comes to establishing a strong foundation for your financial future.
  3. Pay yourself first. Get in the mindset of increasing savings as the first thing you do anytime you receive a raise, promotion, bonus, or any other financial windfall. Upping your savings little by little over time is a great way to work toward maximizing retirement savings without even noticing it!
  4. Automate savings as much as possible. Don’t make things hard on yourself. Automation equals establishing good habits when it comes to savings. Set up savings directly from your paycheck whenever possible—don’t even let the money hit your checking account.

Steps to Building Your Net Worth

Now that you’re armed with some stellar financial habits, let’s chat a bit about where to put your money. As a young person, you have the coveted resource that most older adults wish they had more of: time. Use this to your benefit! The earlier you start saving, the easier it will be to grow your wealth.

Take advantage of your employer benefits. Your company’s retirement plan is a great place to start investing. Try to contribute enough to maximize any employer matching contribution—this is essentially free money that you don’t want to leave on the table. If your employer doesn’t provide a retirement plan or if you aren’t eligible to participate in it yet, consider establishing a Roth IRA. If you are eligible, a Roth IRA can have tremendous tax benefits for young people, and it will allow you to start saving for retirement even if you can’t do it through your employer.

Pay down high-interest credit cards and student loans. If you have credit card balances that you carry from month to month, there’s a good chance that the high interest is eating your lunch and keeping you from making headway in paying it down. Consider calling the credit card company and trying to negotiate a lower interest rate. After that, do what you can to accelerate the payoff. Different strategies work for different people—you can begin with the highest interest rate card, or maybe starting with the card that has the smallest balance appeals to you. Either way, lay out a plan to get them paid off. Oh, and don’t purchase anything else on credit!

Establish an emergency fund. There are varying rules of thumb when it comes to the amount you should have (e.g., three to six months of expenses) in your emergency fund. The key is to get some money set aside in a savings account so an unexpected expense or event doesn’t throw you off track. Employ your good habit of automating savings, and put something each month into your emergency fund so it can build up.

Budget for big-ticket items. Wanting to buy a house? Going to need to replace a car? Planning a wedding? Start saving ASAP! Planning for these expenses will give you the financial peace of mind that you have cash available to cover some, if not all, of the cost. Planning ahead can help you avoid falling into the unfortunate situation of having to put expenses on a credit card or taking out a loan.

Still have extra money to put to work after that’s all said and done? Once you’re contributing the maximum to your workplace retirement account, have debt paid off, and an emergency fund established, you can consider opening other investment accounts where you can put your money to work for you. Consider utilizing index funds and no-load mutual funds to help with diversification. If you need help investing your money, think about seeking out a fee-only financial advisor to assist in making sure you are receiving returns that are appropriate for the level of risk you’re taking.

Yes, it can seem overwhelming. Adulting is hard work and not always fun. But do yourself a favor and give your financial life some time and attention. By getting started early, you will be in a better position to reap the rewards later!

Contact us for a complimentary needs assessment phone call.

Elizabeth Young, CFP®

As Partner and Senior Wealth Advisor, Elizabeth Young finds it gratifying whenever one of her clients reaches a long-held goal with her help and guidance. Those “aha” moments drive the work she does for our firm, including serving as the primary financial planning contact for clients and overseeing general client service.