4 Personal Finance Tips to Help Gen Z Get Ahead
- Author: Jacob Greene
- Posted: 2024-07-06
Gen Z may be starting out in a hole as the economy has entered a deep recession just as they are attending college and looking to enter the workforce. The millennials have been considered the "lost generation" when it comes to personal finance. Personal financial expertise becomes a must for Gen Z as they are starting life heavily in debt and facing uncertain prospects. Where Gen Z starts ahead of the game is that they are aware of the need to be financially literate. Even teens on TikTok are giving personal finance advice to willing audiences. Here are four tips for Gen Z to get themselves off to a solid long-term financial start.
Be Careful with Online Shopping
Gen Z is by far the most tech-savvy generation as they have been raised on mobile devices. Apps and technology make it easier than ever to shop from wherever you are. Gen Z may be the first generation that does not know what the traditional retail shopping trip is like since they order practically everything online. However, they must be careful given how easy it has become to shop online. Too much shopping without the money in hand to pay for it will lead to credit card debt that will become a millstone around your neck. Amazon is great and easy, but do not let the ability to shop from the comfort of your home or on the go put you in financial distress by buying what you cannot afford.
Learn the Value of Compounding
When someone starts saving early and responsibly invests, it will make their later years much easier. The power of compounding can make you financially comfortable sooner than you think. Assume that you invest a dollar and earn a rate of return of 7% after-tax on a yearly basis. In 20 years from now, your money will almost quadruple. Over 40 years, your money will multiply 15-fold. Thus, any dollar that you save today will far outstrip inflation when you save and invest it. Even missing a few years of saving and investing will cut the multiplier applied to your money decades in the future.
Start Saving for Retirement Early
It is the value of compounding that is precisely why you need to start saving for retirement with the very first check that you earn in your full-time job. When you miss a decade of retirement saving, you forego some of the most fruitful time to take of advantage of when it comes to compounding rates of return. Even saving $40 each paycheck when you are in your 20s can mean that you are able to retire a couple of years earlier than you otherwise would have. Many people do not realize that retirement saving is even easier because it can come from pre-tax money. Thus, you only end up paying for about three-quarters of the amount that you save for retirement. Add to that the free money that comes from an employer match, and retirement investing is the one form of saving that almost pays you. It is never too early to begin a 401(k) or an IRA account. If you have an IRA, it gives you tax benefits when you invest, even if you cannot touch your investment returns right now.
Be Careful When Paying Student Loam Debt Early
Many experts will advise you reflexively to get years ahead on your student loan payments in order to begin paying down your student loan debt early. However, we are realistic enough to know that it is not often possible for Gen Z wage earners to both pay ahead on their debt and begin to save money. The key factor here is the interest rate that you are paying on your student loans. If you have locked in low long-term interest rates, it may not be in your best interest to pay your debt early. This is even more true if you do not qualify for a tax break on your student loan interest. If your interest rate is far lower than the rate of return that you can earn on your investments, it may be better to put the money into reasonable and responsible investments. Paying student loans off early just for the sake of getting ahead of your debt may get in the way of your building a robust portfolio that works for your good in the future.
