Financial Planning for Young Adults - A&I Wealth Management

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I am more ready than ever to invest. But how?

By starting early, you can take advantage of the power of compound interest. You can build a solid foundation for your financial future. With learning, patience and curiosity, you can make smart investment choices that will help you reach your goals.

Power of

Compound Interest

Compound interest is when you earn interest on your initial investment plus any previous interest earned. This can cause your money to grow at an exponential rate over time. The sooner you start investing, the more time your money has to grow through compound interest.

For example, let’s say you invest $1,000 at a 10% annual return. After one year, you’ll have earned $100 in interest, for a total of $1,100. If you reinvest that money and earn the same 10% return, your investment will grow to $1,210 after the second year, and $1,331 after the third year. As you can see, the power of compound interest can really add up over time.

Build a solid

Financial Foundation

The fundamentals of successful financial planning are the same whether you are young or old. Spend less than you earn. Save and invest as much money as you can. Invest at a rate greater than inflation. Maintain your health!

By starting early, you have all the advantages of time. You can accomplish more than you may have thought possible. Sometimes, we look at our parents and grandparents generations for an example. But you are in your own generation. You live in America. You have the ability to write your own story!

Credit Card

As in one card only!

It is important to build up a credit history. In modern America, debt is good, if you can control it. By giving yourself a credit card and making every monthly payment on time, you are building credit history. Down the road, when you are ready to buy a home, you will have a higher credit score than you would otherwise. This could save you thousands of dollars every year in interest.

Important: make your monthly payments. And you only need one credit card, so keep it simple!

Estate Plan

HIPAA Release

You might not have many or any assets. You might have a lot of student debt. You might think to yourself, what is an estate plan? And why do I need one? Because you care about other people, and they care about you, the estate plan is a crucial part of financial independence. Now that you are a legal adult, your parents can not speak for you. If you were to be hurt, for any reason, and unable to speak for yourself, it could be catastrophic. The answer to this situation is a form called HIPAA, and it is part of the estate plan. Other documents include your Will and Testament, instructions for what to do with your body, and other things that are rare. It is likely that at some point during your life you will have some sort of a situation where you need the help of someone else. Take care of that now, while you are young, and you and your parents can rest easy.

Important: get your HIPAA release form signed and delivered to your parents or other trusted contact.

Budget

One of the keys to happiness is to live beneath your means. Learn more about how to build a budget with our online resources.

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Good Investments for Young Adults

Learn about equities, bonds, fees and expenses, emergency funds and retirement savings.

Equities

AKA stocks

Equities and Stock Funds

Equities are partial ownership in companies. Equities are stocks. You may be comfortable taking on short-term risk in your investments because you have time to make up for temporary losses. You may want to invest all of your money in stocks or other volatile assets. Make sure to talk with a financial planner to choose the right asset allocation for your situation. Being young means you can afford to be a bit more aggressive than older investors.

Bonds

AKA loans

Bonds and Bond Funds

Bonds are loans from a company to the bondholder. In return, the bond pays a fixed income for a certain term. At the end of the term, the company pays back the initial investment, or principal. You may want to learn about investments like bonds and other forms of fixed income. This will probably reduce the short-term risk while reducing the potential for long-term growth. Less risk, less return; this is the trade-off. And over long periods of time, the effect of compound interest can make the differences large. Make sure to talk to a professional to understand the best decision for your situation.

Fees and Expenses

With investments, you will pay fees and expenses. Many investment product fees may be hard to find or understand. To understand all the costs associated with any investment, discuss your options with a professional financial planner before you commit your money.

Emergency Funds

A key building block of solid financial planning is your emergency fund. Set aside money for unexpected expenses. You do not want to borrow money or use credit cards to cover an emergency. Make the emergency bucket a priority, even if it means setting aside a small amount each month. As a general rule, you want at least six months of your living expenses available in a fully liquid account. Fully liquid means savings, checking, cash or the equivalent. The more you have available, the more safe you are overall. If you have a low risk tolerance, financial concerns, or otherwise just sleep better with more money at hand, increase your emergency funds. For a young person, usually two years is more than enough. As we age, that number can grow to four years of fully liquid money. Your financial planner can help you choose a number that fits you.

Retirement Savings

Saving for retirement, even when you are young, is important. The earlier you start, the more time your money has to grow. There are a variety of retirement savings options available, so talk to a financial advisor to find the best one for you. It’s never too early to start thinking about your financial future. Whether you’re just starting out in your career or are already raising a family, it’s important to make smart decisions with your money.

Tips for Getting Started

With your Financial Plans

Start with a budget

Create and stick to a budget to improve your financial health. Make sure to list all of your expenses, both fixed and variable, on a sheet of paper. Use one of the online tools if you prefer. Many banks offer budgeting software for free. Stay within your budget each month. At first, it may be hard but with practice, it will get easier.
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Save for Retirement

Retirement may seem like a long way off. However, saving for retirement is smart. Saving and investing builds a great habit. Even if you can only contribute a small amount each month, it will add up over time. As you age, with good financial habits, you can contribute more money. Soon, your retirement savings are meaningful and provide all sorts of benefits.

Invest in Yourself

Invest in yourself. Continue your education or take vocational courses. Improve your skills to earn a higher salary down the road.

Understand how to use credit cards

Get a credit card: one credit card. Build your credit by using it and paying it off every monty. But do not carry a balance on your credit card from month to month. Credit card debt and other types of loans can quickly spiral out of control. Stay away from high-interest debt whenever possible and make a plan to pay off any outstanding balances as quickly as possible.

Be mindful of your spending

It’s easy to make a mistake. You might get caught up in the moment and spend more money than you intended on unnecessary things. Be mindful of your spending habits. Think twice before making any unnecessary purchases. And recover quickly when you make a mistake.

Where to Invest

As Young Adults?

As young adult, you are probably wondering where to invest your money. The most important factor to think about when making any investment is risk and return. With that being said, there are a variety of places where you can put your money, each with its own set of pros and cons.

When it comes to returns, the most important thing to remember is that past performance is not necessarily indicative of future results. In other words, just because a particular investment did well in the past does not mean it will continue to do so in the future. However, looking at historical data can give you some idea of what you might expect from an investment over time.

Diversify Your Investments

One of the most important things to remember when investing is to diversify your portfolio. This means that you should not put all your eggs in one basket, as it were. By spreading your money out among a variety of different investments, you can reduce your risk if one of them happens to perform poorly.

There are many different ways to diversify your investments, some common strategies include investing in stocks, bonds, and cash; investing in different asset classes such as real estate, commodities, and currencies; and investing in different countries or regions.

No matter what you decide to do, remember that it is always important to consult with a professional before making any major decisions. They can help you weigh the risks and rewards of each investment and make sure you are taking the right steps to secure your financial future.

Financial Planning Resources

Financial resources and services for Gen Z and for Millennials

Inheritance or Windfall

When you receive a large sum of money through inheritance or windfall, your financial planner will help you develop a custom financial plan that makes room for your short-term and […]