The Gift That Pays Off
In a digitally connected world, the Internet and social platforms enable young adults access to boundless heaps of knowledge. This can allow them to feel connected and confident when it comes to many things, including their finances. But the reality is that there is an alarming gap between financial confidence and knowledge. An industry study shows that 76% of young adults between the ages of 16 and 25 believe they are in a much better financial position than their parents. Well, the truth is 43% had to borrow money from their parents in the last year while 30% skipped meals in order to save.1 Fortunately, there are still many years ahead of them with many opportunities for financial security. With a nudge from mom and dad, meaningful conversations about the principles of wealth can help them optimize their capital and lay out the foundation for their own financial success.
Determine Financial Goals
Knowing how to identify and prioritize your objectives is fundamental to any financial planning. Financial goals can be met when integrated into a structured and systematic plan, organized by short-term and long-term goals. In doing so, approach them with these sorts of questions to help jog their minds:
- What are your short-term and long-term goals?
Short-term goals are those that one would typically want to achieve within one to two years, such as setting up an emergency fund, saving for a car, or covering for minor home improvements. While long-term goals, taking up to five or more years to reach, need a more disciplined saving and investing strategy for things like paying off a mortgage, saving for college education, or investing for retirement.
- How important is each goal? How soon do you want to reach them?
Give priority to each of the goals in order of importance and then determine a time horizon for each. For instance, if retirement is their first priority, they would want a certain percentage of their paycheck invested in a 401(k) retirement plan, an IRA, or ROTH IRA and gradually build this up through pay raises. Only after that, remaining funds can be allocated towards other goals.
Save More, Spend Less
It is an old saying that proves to be true from time to time again. Unfortunately, young adults are not saving enough. Less than half of Americans will be able to cover their essential living expenses when they retire.2 They are spending more on life experiences rather than focusing on their savings. They are living more for the moment than they are for the future. A study shows 46% of U.S. adults carry credit card debt while another study reveals that 33% fear credit card debt more than death.3 4 Their spending habits are putting them drastically behind for retirement because they are missing out on the years where it counts and where they can take a little bit more risk. The key to reducing spending is to cut back a little in every way by evaluating everyday expenditures. Every frugal action adds up and can make a significant impact.
Save for Rainy Days
A shocking statistic reveals 60% of young adults do not have enough money to cover a $1,000 emergency.5 This can lead them to borrowing funds or racking up credit card debt. One can never know of the uncertainties that lie ahead. While they cannot be avoided, having an emergency savings fund can help alleviate setbacks for those unforeseen contingencies.
The first step setting up an emergency fund is to determine one’s take-home pay and then calculating and deducting all monthly expenses and debts to see what is left. From there, a realistic amount set aside each week or monthly can be decided on for the emergency fund. This can be a safety net to ensure that money does not get taken away especially when they have been accumulated for other financial goals.
From One Generation to the Next
Schools can teach so much, and the Internet can do so much. With so much information out there, it is hard to be organized. Financial planning is a life-long endeavor that has to start somewhere, and we believe it can start at home. Give your loved ones a gift of financial literacy and an opportunity for us to share our investment philosophy, values, and perspective–completely complimentary. Through passed down knowledge and a concrete plan in place, your loved ones can have the assurance of a sound financial future. Believe us, it will pay in the long run.
Footnotes, disclosures, and sources:
Securities offered through SCF Securities,Inc. Member FINRA/SIPC 155 E. Shaw Ave. Suite 102, Fresno, CA 93710 • (800) 955-2517 •Fax (559) 456- 6109. SCF Securities, Inc. and Creative Financial Strategies LLC are independently owned and operated. www.scfsecurities.com Note: Securities offered through SCF Securities Inc., Investment Advisory Services offered through SCF Investment Advisors, Inc. The content within this document is for informational and educational purposes only and does not constitute legal or tax advice. Customers should consult a legal or tax professional regarding their own situation. This document is not an offer to purchase, sell, replace, or exchange any product. Insurance products and any related guarantees are backed by the claims paying ability of an insurance company. Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results. Some types of permanent insurance may require consistent premium payments, or the policy may risk lapsing. Unpaid policy loans decrease future death benefits paid to beneficiaries. Excessive policy loans may cause the need for future premium payments. If a contract lapses due to excessive policy loans or if a customer chooses to surrender their policy, one may be subject to tax payments for policy loans that exceed the premiums paid.
[2] https://www.fidelity.com/about-fidelity/individual-investing/americas-savings-rate-improves
[3] https://www.creditcards.com/credit-card-news/infographic-millennials-credit-card-debt.php
[4] https://www.cnbc.com/2017/11/08/credit-card-debt-scares-millennials-even-more-than-death.html
[5] https://www.cnbc.com/2018/12/19/60-percent-of-millennials-cant-cover-a-1000-dollar-emergency.html
