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financial planning for generation z

The youngest and most diverse generation in the United States, Generation Z (also known as “Gen Z”) is the generation succeeding Millennials. It includes anyone born between 1997 and the early 2010s. As Generation Z finishes college and high school, they are entering the workforce in larger numbers. Many members of Generation Z are determined to build healthy financial habits and achieve financial security, particularly as they have witnessed economically difficult times such as the Great Recession and the COVID-19 pandemic. Here, we outline key components of financial planning for Generation Z.

1. Make a Budget

A foundational first step of financial planning for Generation Z is to make a budget. In order to make a realistic financial plan, you first need to understand your income and expenses. Budgeting allows you to be in control of your finances rather than improvising from paycheck to paycheck.

To make a budget, calculate your income and create a list of monthly expenses. Paystubs, bank statements, and credit card statements are all helpful to determine this information. After you have added up your income and expenses, check whether your income is higher or lower than your expenses. If your income is lower than your expenses, consider looking for ways to trim unnecessary expenses, and think about increasing your income by asking for a raise or taking on a side hustle. If your income is higher than your expenses, you are off to a good start, and it’s time to think about putting funds towards other areas of your budget, such as paying off debt and saving for retirement, as we discuss below.

2. Create a Debt Repayment Plan

An Experian consumer debt study showed that in 2020, Generation Z had an average of $16,043 in outstanding debt. The high levels of debt among Generation Z and millennials may be partially explained by the COVID-19 pandemic, which caused record unemployment.

If you have debt (whether from student loans, credit cards, a mortgage, or other sources) it is essential that you understand how much you owe and create a plan to repay the amount (or seek debt forgiveness, if applicable). Failing to make at least your minimum payments will have serious consequences, including late fees and damage to your credit score. Contact your student loan servicer or a financial advisor if you need help creating an effective debt repayment plan.

3. Save Up an Emergency Fund

Unexpected expenses are a fact of life. Without an emergency fund, however, an unexpected expense has the potential to create serious consequences, such as incurring credit card debt or becoming unable to pay rent. These problems can be avoided by proactively saving up an emergency fund. In addition, a substantial emergency fund will give you the peace of mind that comes from knowing that a job layoff or a medical emergency will not leave you in dire financial straits.

When saving up for an emergency fund, aim to save 3 to 6 months of living expenses. This money should be kept in a checking or savings account so that you can access the funds quickly in event of an emergency.

CNBC reports that, as of June 2021, less than half of Americans have three months or more worth of savings. In fact, 25% of Americans in the reported survey had no emergency savings at all. Saving up an emergency fund will give you more financial security than the average American, and should be a crucial goal of financial planning for Generation Z.

4. Save for Retirement Sooner Rather Than Later

Generation Z is ahead of other generations in their relative progress towards planning for retirement. According to Business Insider, Generation Z started saving for retirement at age 19, whereas Millennials, Gen X, and Baby Boomers did not start saving for retirement until ages 25, 30, and 35, respectively. Since Generation Z is the youngest of these generations, they are also in the best position to take advantage of compound interest.

If you are in Generation Z, make sure you stay ahead of the game and start saving for retirement sooner rather than later. Research your employer-sponsored retirement plan and consider participating as soon as you are eligible. The most common types of 401(k) plans are Traditional 401(k)s (where contributions are deducted from taxable income, but withdrawals are taxed) and Roth 401(k)s (where contributions are made with after-tax dollars, but withdrawals are tax-free if taken after reaching the age of 59½).

The IRS allows you to contribute up to $20,500 to a 401(k) plan for the year 2022. Most employers will match employee contributions up to a certain percentage; if you have this benefit, it is highly recommended that you contribute at least the amount needed to obtain the maximum employer matching contribution. Talk to your HR department if you are unsure of your retirement plan eligibility and options.

If you have earned income, you can also set up an individual retirement account (IRA), even if you participate in an employer-sponsored plan.  In 2022, the IRA annual contribution limit is $6000 for those under 50 years of age.

5. Meet with a Financial Advisor

A financial advisor can help you achieve your financial goals, including retirement planning and discovering ways to increase your net worth. Meeting with a financial advisor sooner rather than later will enable you to start working towards these goals more effectively.

Some considerations to think about when looking for a financial advisor include the following:

·  What are the advisor’s credentials?

·  Is the advisor a fiduciary?

·  What types of services are offered?

·  How much does the advisor charge?

At DHJJ Financial, our advisors are fiduciaries, which means that they have the legal obligation to place your best interests first. We offer full-service financial planning and enable our clients to better understand the management of their assets.

How DHJJ Financial Can Help with Financial Planning for Generation Z

DHJJ Financial has expertise in financial planning for Generation Z. Our team has in-depth knowledge of retirement planning, income tax planning, and much more. To get started, give us a call at 630-420-1360 or fill out the form below.

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