Strengthening and protecting
economic security is a priority issue for all individuals, whether it is in the
form of a house, savings, a college education or inheritance for children.
Wealth softens the blow of unexpected events, such as job loss or even a
downturn in the economy. This can be seen clearly in the aftermath of the Great
Recession of 2007-2009, which devastated the life of families with little to no
wealth while affluent families recovered relatively well. Yet wealth building
in the modern day economy is a daunting task for young professionals as we face
the highest student loan debt and the weakest job generating economy this
country has seen.
Nearly 20 million Americans attend college each year. Of that 20 million, close to 12 million – or 60%
- borrow annually to help cover costs. Of the 37 million borrowers who have outstanding student loan balances,
14%, or about 5.4 million borrowers, have at least one past due student loan
account. So what does a young professional do to ensure that they
capitalize their wealth building years?
I’ve researched this question and the following
tips is what I’ve uncovered:
- "Its not how much you make, but how much you save.” Young professionals believe they do not earn enough to invest and often hold off until later in life when ages 25(post college) to 40 are actually the best time to save and invest aggressively[i].
- Go for the Roth 401k. Early investments in 401ks and IRA’s can yield tax-free high returns in the long term[ii]. The benefits of Roth is the savings after-tax dollars, so, unlike a regular 401(k), you won't pay income taxes on withdrawals
- Once you have a Roth 401k-“Don’t cash out”. More than half of workers in their twenties who leave a job do not roll their 401(k) into an IRA or their new employer's plan[iii].
- Budget -budgeting is not a torture device—it’s you telling your money what to do instead of wondering where it went
- Establish an Emergency Fund- First save a $,1000 to cover small emergencies, like flat tires and medical co-pays.[iv].
- Prioritize Payments- Give high priority to debts related to necessities such as utilities and debts you can't discharge, including student loans and unpaid federal taxes[v].
As I move forward to deal with
the issues that many of my peers are facing, I can’t help but feel it’s a
sacrifice now and enjoy later game. Hopefully, the aforementioned tactics help
me maximize my income and secure wealth for my offspring.
[i]
Investment Planning by the Decade, Frank McCoy. Black Enterprise, http://www.blackenterprise.com/money/investing/investment-planning-by-the-decade/4/
[ii]
Building Wealth, Best Years if you’re 25 to 34. http://money.cnn.com/gallery/pf/2013/04/15/building-wealth-young-adults.moneymag/
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