I’ve been getting a lot of requests to start creating videos on advice topics again. So what better way to kick it off on a subject we all love – financial responsibility! Over the past 2.5 years I’ve learned A LOT about how to manage my money as well as the importance of being financially responsible. In this video I give what I think are the five most important pieces of financial advice young people should be following.
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It doesn’t matter if it’s $5 or $500 – every month you should be contributing to your savings. Your goal should be to save at least 3 months of living costs to have in case of (God forbid) a potential lay off, injury or some unforeseen circumstance. So if you need $2,000 a month survive (aka to eat and pay all your bills) then you should aim to have at least $6,000 in savings.
Now if you want to get fancy and if your risk profile allows, invest your savings into a simple index fund. Lots of people get spooked at the idea of buying a stock but with the proper research and education, you can increase your savings without doing a lot of work.
Diversify Your Income
It’s incredibly rare to see a wealthy person that attributes their wealth to a yearly salary. It often comes from a variety of avenues – their full-time job, private investments, the stock market, real estate, and income generating hobbies. Nick and I have truly taken this approach and diversified our income to more than just our full-time jobs. Whether it be a part-time job bartending, babysitting, renting out your apartment through AirBnB, maintaining a website or YouTube channel, investing in the stock market – beginning to diversify your income at a young age will put more money in your pocket, setting you up for financial stability later in life.
Pay off Debt/Student Loans
Unfortunately for most 20-somethings, student loans are the primary form of debt most of us are burdened by. Many payment plans offer reduced rates if you sign up for automatic withdrawal, so not only does that reduce your interest rate but it sets up a monthly routine. Everyone has different financial abilities so explore the options your provider offers for paying back or refinancing your student loans. Paying off debt quickly should be a priority but it does conflict with saving. This is where Nick and I differ: my main focus is my loans, paying off as much as possible each month. For him, he’s taken the approach of paying the minimum on his loans and investing the rest in the stock market. As long as his investment gains are greater than his interest rates, he’s making more money than he’s losing (it’s a little confusing to me to be honest). No matter how you go about paying, keeping debt under control should be a number one priority. Student loans are not something you want shadowing you into adulthood.
Open a 401K
So I didn’t know what a 401K was until I graduated college and started my first job. Basically it’s a retirement savings program that many companies will offer their employees. An amount of your choosing gets deducted from your paycheck and your company will match a percentage of that – normally it’s 25% – 50%. So if you contribute $100 every paycheck to your 401K, your company will add an additional $25 to $50 on top of your $100. Guys, that’s free money!!! Yes, you won’t receive it until you retire, but it’s still money in your pocket. I for one plan on living up my retirement, so I’m trying my best to contribute as much as I can to my 401K while I’m young and don’t have kids, insurance expenses, etc.
Another advantage of a 401k is that it reduces your taxable income because it’s taken out of your paycheck prior to taxes being withheld. This means your total taxes have effectively decreased for the year.
Think Wisely About Big Purchases
Do you really need a new handbag? Is that trip to Las Vegas necessary? Probably not. As much as I’d love to buy myself a Chanel bag with the money I have sitting in my savings account, I know that I don’t need it and it would be financially irresponsible to buy one. I always like to remind myself that THINGS CAN WAIT. I will love a beautiful pair of shoes just as much at age 34 as I would now at 24. Vegas will be just as fun if I save my money and take that trip in a few years. When you are considering spending a large amount of money, take a step back and really think wisely. Don’t be impulse and really give yourself time to decide by weighing the pros and cons of a purchase.