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Financial Planning for Millennials Looking to Meet Wealth Goals

Millennials aren’t looking for an allowance anymore — we’re looking to get started with financial planning. Why? Because we’re now full-blown adults in the workforce, with financial goals of our own. Many millennials (defined as ages 23-38 in 2019) are beginning to invest to meet their financial goals. As a millennial myself, I struggled to understand how to save money for retirement, choose investments, and meet savings goals when I first entered the workforce. Here are some steps you can begin to take in order to move forward, saving for retirement, and achieving your financial goals.

 1. Participate in Retirement Plans as Soon as You are Eligible

Consider participating in your employer-sponsored retirement plan as soon as you are eligible. The most common type of employer-sponsored retirement plan is a 401(K). There are two types of 401(K) plans:

  • Traditional 401(K) – Contributions are made with pre-tax dollars directly from your paycheck. The account will grow tax-deferred. Which means you won’t pay taxes until you receive the money. Withdrawals are taxable and should not be made until you turn 59 and ½ to avoid an early withdrawal penalty.
  • Roth 401(K) – Contributions are made with after-tax dollars directly from your paycheck. The account will grow tax-free, and withdrawals from the account will remain tax-free (and penalty-free) if they occur after reaching the age of 59 and ½.

You can choose how much to contribute to the plan, up to the legal limit allowed. Most employers will match a portion of employee contributions to their retirement plans. At the least, contribute what your employer will match. For example, if your employer matches up to 3% of your salary, make sure to contribute at least 3% to receive the full employer match. Every plan has its own set of rules,  so check with HR to make sure you understand your eligibility and options.

 2. Determine Your Risk Level and Begin Investing

The first step to beginning to invest in the market is to determine your level of risk. Studies have shown that many millennials prefer cash because it is safe, but savings account rates do not compete with the potential rate of returns in the equity and bond markets. Consider goal-based investing when choosing an investment strategy. Invest money needed for short term goals more conservatively than funds set aside for retirement. A more moderate or aggressive approach can be taken with long-term retirement assets, they have more time to recover potential losses as the market naturally moves up and down. A well-diversified portfolio with a mixture of equities and fixed income will help protect against downturns in the market.

3. Have an Emergency Fund

It is crucial to make sure that you have enough cash saved up and available in case of an emergency. A good rule of thumb is to have three months of your salary saved, so if you lose your income, you would have a cushion to pay your bills while looking for a new one. If you have a unique set of skills that would make it harder to find a new job, consider saving more than three months of salary as the search for a new job may take longer. You also want to save for planned expenses coming up in the next couple of months, i.e. a new furnace fund or down payment for a car. Setting aside cash will help ease the burden of when it comes time to pay.

4. Work with a Financial Advisor

Once you have accumulated money in your investment accounts, you may want to start working with a financial advisor to help with your portfolio and for investing advice. Often, people wait until significant life events, such as the birth of a child, to start thinking about the future, but you can and should start planning now. A financial advisor can help to align your savings with your retirement and can develop a comprehensive financial plan.

Getting to know an advisor first is important. Some questions you will want to when looking for an advisor include:

  • What are your credentials, and are you a fiduciary?
  • What is a typical client type?
  • What type of services do you offer? Collaborative, stand-alone planning, or investment advice only?
  • How much do you typically charge?
  • How will our relationship work?

Read this article to find out when it might be time to switch to a financial advisor if you start managing your investments on your own.

How DHJJ Can Help Financial Planning for Millennials

Once you are ready to begin collaborating with an advisor, you can reach out to DHJJ Financial Advisor to begin planning for your future. Like any wealth planning, financial planning for millennials should begin as soon as possible. Call us at 630-420-1360 or fill out the form below.