Here at Lasso, we love featuring financial advisors who really get it, and this week’s article is no different. This piece was contributed by Shane Sideris of Synchronous Wealth Advisors.
Your 20s are an exciting decade of searching, self-discovery and figuring out how you’ll do this thing called “adulting.” This is typically seen as the safest time in your life for risk-taking and exploration, when you can test the boundaries to find out who you really are and what’s most important to you.
The lack of structure and expectations is part of what makes this time in your life so exciting. That being said, we do have a few suggestions that could really help make a difference with your financial health later in life.
Don’t get us wrong, we don’t want to rain on the fun. But one of the essential pieces of creating wealth is giving your money time to grow. If you can keep a few key points in mind early in your life, you will dramatically increase your chances of retiring a millionaire—possibly a multi-millionaire.
So, without further ado, here are a few essential money tips for 20-somethings.
Start Young
Think you need to have a big chunk of money to start investing? Think again.
When it comes to investing, it’s well known that time in the market is your most valuable asset—the sooner you begin your investment journey, the bigger the eventual payoff will be. That’s because you’re allowing your money to compound, taking your dividends and reinvesting them to create even greater returns.
Think of it like a snowball rolling down a hill. The higher up the hill you start rolling the snowball, the more time it will have to gather snow on its way down.
For the last century, the stock market has delivered an average return of about 10%. The math adds up: an investor that contributes $6,000 per year into their Roth IRA account beginning at age 25 can expect to have about $3.22 million by the time they’re of retirement age. That’s a huge leap from our investor who begins investing the same amount at age 35, and especially at 45 years old.
It’s not enough just to have income and set aside money into your savings account each month. The average savings account earns just 0.06%. As of this writing, the national inflation rate is 7%. In short, money in your savings account is actually losing value over time.
Building wealth is as much about where you keep it as much as it is about what you keep.
The ultimate goal for most people is achieving financial independence so you can control how you spend your time. Do you want to travel more? Retire early? Whatever your goal is, the sooner you get started on your financial journey, the better.
Remember that it’s easier to become wealthy through investing than through time alone. Don’t just work for your money—let your money work for you.
Pay Yourself First (Without Thinking About It)
We all know how tempting it is to spend that extra cash sitting in your checking account. After all, eating out is so much easier than cooking for yourself.
What’s the best way to curve those impulse buys? Pay yourself first.
Do your best to save and invest at least 30% of your income. That might sound like a lot, but one great thing about us humans is that we’re creatures of habit. After building a tighter budget and living off of it for a few months, it will become second nature and you won’t even notice it anymore.
One important piece of building this level of saving into your lifestyle: You’re much more likely to do it successfully if you make it automatic. Create a system so that the 30% never even touches your checking account and goes straight into savings/investments.
If you have to move the 30% manually each month, you’re much more likely to either not do it all or move less money than you should. We get it—expenses come up. But the more you can remove your own feelings from this process, the better.
Most banks and payment systems allow you to set aside money so you don’t even have to think about it. For the nearly 20% of millenials who haven’t even opened a savings account, this trick could be a lifesaver.
Build a plan to help you visualize yourself as a millionaire
It’s much easier to stay motivated to save if you can see the end goal you’re working toward. Download a financial planning app like Lasso and create a savings plan so you can see how much you can save in the end.
Even if you have no money saved up to begin with, building a long-term plan can help you see the end result of decades worth of work.
Avoid “lifestyle creep”
As you gain experience and start earning more money, you’ll find that there’s no shortage of things to spend your extra money on. It’s true: The more money you have, the easier it becomes to spend.
The problem is that this mentality can cost you a lot in the long run.
It’s called lifestyle inflation, or “lifestyle creep”—when a person’s spending increases alongside their income. Whether it’s a bigger apartment/house, that new pair of shoes, or whatever other big purchase you’ve been eyeing, it’s important to treat yourself in moderation.
When you start earning more, you should also start saving more.
Say you work in marketing: The average entry level salary for a career in marketing is $52,789. If you saved 30% of that, you’d put away $15,837 per year.
Five years into your career, you probably have enough experience to move up to a job like Marketing Communications Manager, which has an average salary of $83,369 per year. If you increased your saving to keep putting away 30%, you could be saving more than $25,000 a year at that point. But if you didn’t increase your saving, you would only be putting away 19% of your income.
Repeat and Surround Yourself with Like-Minded Individuals
You want to continue to accumulate financial assets, so it’s important to think of investing as a lifestyle rather than a short-term goal. One way to keep up the encouragement? Surround yourself with other investors.
If you’re around people who want to eat out constantly and spend money on stuff other than investing, most people can only resist the peer pressure for so long. While your friends don’t mean any harm, their constant invitations to go out for dinner and drinks can have a severe negative impact on your savings.
There’s a growing movement of young people seeking “financial independence” (FI, for short) who support each other and share money tips. You can follow TikTok accounts—like this one from @ecommjess, who shares personal finance tips through fun videos—or other social media groups and accounts. Immerse yourself in these communities to find your way toward financial freedom.
As you build up your savings, financial companies will inevitably come out of the woodwork offering to “help” you increase your wealth. Be cautious of firms trying to sell you something (e.g., life insurance, annuities, etc.). As your portfolio grows and your wealth builds, these offers will become more common. Do your research and choose wisely, and don’t be afraid to lean on those like-minded individuals in your communities to make the big decisions.
Get Started with Lasso
Are you ready to find your way to financial independence? Start your investment journey by downloading the Lasso App to create a personalized financial plan and connect with an advisor today.
Featured author
Shane Sideris, CFA, is a Managing Partner at Synchronous Wealth Advisors, an independent Registered Investment Advisor, with clients across the United States. Synchronous is a full service wealth advisory firm, with tax experts and investment professionals working together on behalf of clients. Prior to Synchronous, Shane spent eight years at BlackRock in their Retirement Group.
You can find Shane and connect with him in Lasso!