Fact: 20-somethings are among the most financially confident people in America.
But, really, thatâ€™s what we found while researching our latest white paper on financial confidenceâ€”and, initially, it surprised us too.
But it makes sense: Sure, Millennials may have some daunting student loans to pay off on entry-level salaries, but they typically have few other major financial responsibilities. Plus, with some hard work, they can set themselves up for plenty of salary bumps down the road.
If you look at it this way, the financial outlook for a 20-something is pretty goodâ€”until about the age of 35.
Thatâ€™s when financial confidence tends to take a nosedive, thanks to a combination of earning potential plateaus and demanding responsibilitiesâ€”like kids and mortgages.
Now, we realize weâ€™re not painting a pretty picture here, but thereâ€™s no reason to panic. Simply knowing whatâ€™s aheadâ€”and taking steps to prepare for itâ€”can help put you ahead of the game.
â€œYou donâ€™t have to live an austere lifestyle to mitigate those challenges,â€Â says Latasha Kinnard, author of â€˜20-Something & Rich.â€™ â€œYou just have to make decisions that balance the benefits between your present self and your future self.â€
Ready to grab onto this golden opportunity to help change the course of your money life? Then consider making these savvy, net-worth-boosting moves in your 20sâ€”and you may reap the benefits for years to come.
Net Worth Move #1: Stash 10% Into Retirement
â€œIf you get into the habit as a 20-something of spending just as much as you make, itâ€™s very hard to change that pattern,â€ says Lise Andreana, a CFPÂ® and author of â€œNo More Mac nâ€™ Cheese! The Real-World Guide to Managing Your Money for Twenty-Somethings.â€
So start training yourself to live on less in your 20s by automatically funneling a minimum of 10% of your paycheck into your 401(k) or IRA account,Â AndreanaÂ says.
That may seem like a laughable sumâ€”especially if youâ€™re not making muchâ€”but there is a significant plus to pushing yourself to save at an early age: Your money will have more time to benefit from compound growth.
And if you keep stashing away a steady percentage as you bank a few raises, by the time you hit your 40s, youâ€™ll likely have a pretty sizable retirement account balanceâ€”and hopefully get to a point where youâ€™ll be comfortable putting away $1,000 or more each month without breaking a sweat.
Net Worth Move #2: Get a Money Discussion Going
As a member of the Millennial cohort, you have a distinct advantage over your parents: â€œBetween Facebook and Twitter, Millennials tell people everything!â€ Andreana says.
And that can be a good thing when it comes to your money.
Allow us to explain: By the time you get to your late 30s and 40s, you may not feel comfortable sharing salary details with your friends, or how much you spent on your last vacationâ€”your paths will have diverged too much.Â But now is the time when you can leverage your openness to make solid financial decisions.
So tell friends your budget for the month, so they donâ€™t choose a restaurant that will break it. Email a trusted peer working at another company to get the dirt on his benefits package. And put up a social media post asking everyone which bank they recommend.
These tidbits may help you save more money, negotiate higher pay, and find a bank that offers a valuable credit card rewards programâ€”all perks that can, of course, up your net worth.
Net Worth Move #3: Invest in an Insurance Policyâ€”for Your Money
You wouldnâ€™t dareÂ forgo health insurance, would you? Without it, you could end up in big financial troubleâ€”and foot aÂ $55,000 bill just for getting your appendix removed.
Thatâ€™s exactly why every 20-something should consider having an emergency savings account: Failing to fund one could mean youâ€™re vulnerable to racking up credit card debt just to pay for unexpected expenses that crop upâ€”a habit that could keep you in the red for years.
But thatâ€™s not the only reason to prioritize this net-worth-boosting to-do. â€œWithout an emergency fund, not only do you not have something to fall back on, but you also donâ€™t have that sense of confidence you need to move forward on the things youwant to do with your finances,â€ Kinnard says.
Translation: Once youâ€™ve proven to yourself that you can successfully put away six months of net income into an emergency fund, you can confidently consider taking on bigger goals, like stashing away steady cash in your buying-a-home, travel-the-world, or investment accounts.
Net Worth Move #4: Pursue an Advanced Degreeâ€”If the Math Works
If youâ€™ve heard that getting a diploma from a top M.B.A. program can increase your lifetime earnings byÂ several million, you might be tripping over yourself to enroll immediately.
In many ways, your 20s could be the perfect time to go back to school. The student mind-set isnâ€™t too far in the rear-view mirror, and youâ€™d only forgo an entry-level salary if you were to enroll full-time.
But hereâ€™s the catch: Furthering your education isnâ€™t always a slam-dunk when it comes to investing in your future. â€œThe potential earnings have to be worth the costs,â€ Andreana says.
So break out your calculator, and add up how much itâ€™ll cost you to enroll, plus the earnings youâ€™d be giving up if you decide to become a full-time student. Then compare that with how much the degree is likely to increase your incomeâ€”and how long it would take you to recoup your expenses.
For instance, if you leave a $50,000 job for two years, and pay $60,000 in tuition, then youâ€™re already out $160,000. A $10,000 raise after you graduate means it would take you 16 yearsÂ to recover what you spentâ€”or more if you took out student loans and have to pay interest.
The final step in this exercise is figuring out whether you think itâ€™s worth it. Hint: In this case, itâ€™s probably not.
Net Worth Move #5: Set a Deadline to Pay Off Your Student Loans
Knowing how to prioritize your student loan debt can be tricky. On the one hand, they tend to have lower interest rates compared to other types of debt, which may land them at the bottom of your financial priority list.
But on the other, they can shove your net worth so far into the negative category that itâ€™s paralyzing. The average student left college in 2013 with more than $28,000 in student loan debt, and now needs to make payments on that debt while making only about $45,000.
If you donâ€™t want to let student loans get in the way of your future prioritiesâ€”like, say, becoming a homeowner one dayâ€”your 20s are the time to buckle down.
You can start by deciding on a specific date when youâ€™d like to buy that home, for example, and declare that as your deadline to get out of debt and save up 20% for your down payment.
From there, calculate how much youâ€™ll need to pay every month in order to wipe out your loans in time, and come up with a stricter spending plan that supports your goal.
â€œI know this isnâ€™t necessarily something that you want to do,â€ Kinnard says. â€œBut you can see the silver lining and understand that this is going to set you up for success for the rest of your life.â€
A nice bonus? By the time your net worth is in the positive and youâ€™re ready to put a down payment on your dream home, you can repurpose the money you were funneling toward student loan payments directly to your mortgage.
Net Worth Move #6: Donâ€™t Blindly Accept a Job Offer
As you might expect, the career choices you make in your 20s can have a lasting impact on your future net worth. Thatâ€™s why itâ€™s crucial to thoroughly evaluate every employment offer you receive â€¦ and avoid making a decision based on salary alone.
â€œThat would be an expensive mistake to make,â€ Andreana says.
Itâ€™s just as important to factor in the value of big-ticket benefitsâ€”like how much the company kicks in for health insurance premiums and retirement contribution matchesâ€”because they can amount to major savings over time.
Case in point: A 25-year-old making $30,000 with access to a company 401(k) match could potentially net more than $10,000 in additional retirement savings by 35, compared to someone who took a job that didnâ€™t offer a company match.
So whenever youâ€™re considering more than one job opportunity, rig up an apples-to-apples comparison.
Start by collecting all of the info you can about the benefits at each company.Â Then figure out things like: How much will you pay in out-of-pocket health expenses if you join Company A, which covers 80% of your insurance premiums, compared to Company B, which covers 75%? And assuming you funnel 7% of your paycheck to your 401(k) each year, how much would each employerâ€™s match be worth?
Assigning a value to each benefits packageâ€”and then adding it to the salary numbersâ€”can help you pick the job thatâ€™ll take your net worth to the next level.