I was visiting my local UPS Store the other day, and I was chatting with the three Gen Z peeps that work there. We’ve talked off and on over the last year since I’ve been selling on Amazon. Let’s just say, I’m a regular at the UPS Store. Anyway, the 20-somethings started asking me questions about investing, and money. The first thing I did was I told him them to read my blog! Haha! Of course I wanted to share and offer some guidance. Afterwards, I thought I’d run down some key things to think about if you’re part of Gen Z and finally earning your own cash. Ah-ha! Welcome to adulthood! Now it’s time to make some smart money moves while you’re young.
I understand that adulting isn’t cheap these days. Soaring rents, crushing student loans, and the rising cost of literally everything is making it harder than ever for young folks to get ahead financially. But you’re not doomed to being broke forever if you play your cards right early on.
Most personal finance peeps agree that building wealth starts with taking a strategic approach from day one. Try not to just wing it when it comes to managing your finances. If we can start to come up with a comprehensive game plan instead of treating things like budgeting, saving, and investing as separate goals.
Okay, With all this in mind, here are the top 5 money power plays for young adults:
Start an Emergency Stash
The first order of business? Build yourself a rainy day fund for unpredicted expenses. Using credit cards for surprise costs like car repairs can quickly snowball into budget-busting debt when those interest rates of over 20% kick in! Ugh…makes me sick!
You can start by saving $1,000 as a starter emergency fund. This can be enough to cover most minor emergencies. In the long-term, work towards stashing away a few months worth of living expesnes in case you lose your job, or have a major set back.
Be Careful with BNPL (Buy Now Pay Later)
Buy now, pay later services like Affirm and Afterpay are blowing up! These services let shoppers pay for purchases interest-free over time. While convenient, they can be a slippery slope. You can’t shop anywhere without seeing the option to “Pay Later”
BNPL can lead to more BNPL. By Relying on installment plans for everyday stuff, it is an easy habit to fall into, and juggling multiple payment schedules can be complicated and become overwhelming.
Plus, most BNPL companies don’t report your payment activity to credit bureaus. So even if you’re responsible with it, you’re not building credit – which you’ll need for getting approved for mortgages, auto loans, and credit cards with low interest rates down the road.
Start Building Credit
So, speaking of credit, this gets kinda crazy. Many young adults are avoiding credit cards altogether after seeing their parents struggle with balances. Or, they get a credit card, and they easily start a downward spiral, or interest payments and overwhelming debt.
While some personal finance gurus advocate for never using a credit card, I think being able to prove your creditworthiness to lenders can be important down the road. It is good to avoid problematic debt, but have at least one card that you use responsibly and pay off monthly. This helps build your credit score and can help with getting lower rates when buying a house later on, for example.
Take That 401(k) Match
If your employer offers a retirement plan such as a 401(k) and offers a match, you’d be straight-up insane to pass it up. It’s essentially free money from your employer towards retirement.
I’d recommend these GenZ peeps, at minimum, contribute enough to get the full company match. Investing while young lets your money grow for decades thanks to compounding interest. Time is on your side! Get started early.
For newbs, it can be totally overwhelming and complicated what to invest in within your 401k. For years, I didn’t know what I was doing. To start choose simple index funds which have historically outperformed just about every other investment. Or, or choose what’s called a Target Date Fund. You choose based on your estimated retirement date, and these automatically adjusts the assets as you get closer to your retirement date.
Consider a Roth Account
Speaking of retirement, Roth IRAs and 401(k)s are extremely valuable for young adults. Contributions are made post-tax, but withdrawals in retirement are 100% tax-free.
It’s important to let compounding returns grow completely tax-free is insanely powerful when you start so early in your career. You’re likely in a lower tax bracket now as a young adult earlier in your career, than you will be later on.
The key to building wealth as a broke 20-something? Make your money work smarter, not harder. By making smarter moves like automating savings, leveraging retirement accounts, and avoiding credit card interest, you’ll be stacking cash in no time. Horns Up my Gen Z peeps!
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