By Dejan Ilijevski
Understanding how finances work is crucial for reaching financial independence and success. Sadly, schools and universities often skip teaching these skills, and good money habits aren’t always passed down in families. That means it’s on us to learn about personal finance and make smart money choices—from our first job out of college to retirement.
In our 20s, we might be earning less, paying off student loans, starting a family, or saving for a home. With all these financial pressures, planning for our overall financial health can take a back seat. But even while dealing with these other money issues, remember that there are healthy financial habits you can start young that will pay dividends by the time you retire.
Get Excited About Investing—and Do it Early!
Investing isn’t just about making money; it’s about creating a comfortable future and realizing your dreams. By investing early, you’re giving your money the time it needs to grow through the power of compound interest. This means that every dollar you invest has the potential to earn more over time, creating a snowball effect that can significantly boost your wealth.
Starting your investment journey in your 20s or early 30s can make a huge difference in the long run. Even if you’re just beginning with small amounts, the key is to be consistent and let time work its magic. The earlier you start, the more opportunities you give your investments to grow, and the more flexibility you’ll have in meeting your financial goals. So, get excited about investing—it’s an adventure that can lead to a more stable and prosperous future!
Understand and Use Your Company’s Benefits
You’ve likely heard this tip before, and it’s a solid strategy for managing your money that never fails. If your workplace offers a retirement plan, sign up for a 401(k), especially if they match your contributions—it’s like free money! You can also set aside a chunk of your monthly earnings in an investment account, like a traditional or Roth IRA, or a regular investment account, depending on your situation. The sooner you start, the more your wealth can grow.
Investing and building your investment portfolio when you’re young gives your money more time to utilize compound interest. This is the magic of investing early—it makes your money work harder for you. Time’s ticking and it won’t wait for anyone, so it’s crucial to use the time you have now to your advantage.
Starting to invest at 25 and keeping it up can more than double your investment value by the time you’re 65, compared to starting at 35. But if you haven’t started investing yet, or you’ve got a nice savings but aren’t sure what to do with it, don’t worry—it’s not too late. The best time to invest was yesterday, but the next best time is right now.
Create a Financial Plan and Adjust it Accordingly
Many people mistakenly see the creation of a financial plan as extraordinarily complicated, but it doesn’t need to be. In fact, your financial plan when you are younger can be as simple as creating a budget, sticking to it, and investing in your retirement.
Many people also mistakenly see a financial plan as set in stone. However, once you establish a financial plan, you can and should review it frequently and adjust it to match your new financial situation or challenges. Financial plans and wealth management strategies should evolve with you and your family over time. Perhaps you are making a better salary and want to invest more toward your retirement, or maybe you want to invest in real estate. Your financial plan needs to be fluid in order to account for life changes.
Understand and Use Your Company’s Financial Offerings
It is up to you to fully understand and take advantage of your company’s benefits, like your 401(k). If your company offers a good matching program, remember to contribute enough to receive the full benefits of the matching program.
When you’re young, it’s difficult to imagine your retirement. Maybe you have a growing family or are trying to make ends meet as you grow professionally. But when you miss out on your company’s match program, you are missing out on free money that will have a lifetime to grow and could have a positive impact on your retirement.
Tax-Advantaged Retirement Accounts
When many people start their careers, they typically invest very little in their retirement. It is somewhat to be expected. Young professionals may think retirement seems like a long way off and there are more pressing matters to attend to.
However, not investing in your retirement when you are young is a big mistake. Investing early in your career means that your initial investment, no matter how humble, has time to increase in value. Smaller deposits in your 20s can result in a significant amount of money in your retirement. It also gets you into the financial habit of taking a portion of your income and investing it toward your retirement.
Tax-advantaged retirement accounts are a great way to save on your tax bill and invest that money in your future. Tax-advantaged refers to an investment that is exempt from taxation or tax-deferred when you initially invest in the account. Some tax-advantaged accounts include IRAs and 401(k)s. Tax-free accounts, such as Roth IRAs and Roth 401(k)s, use after-tax dollars and the investment grows tax-free and remains tax-free when you withdraw it in retirement.
Understand How to Make Your Money Work
Saving money is a great habit only if you leverage it in the right ways. Even if you have an emergency fund stashed away, it’s fine to keep it in a high-yield savings account. However, if at least some of your emergency fund is kept in a taxable brokerage account, you can potentially earn more than if it were in savings depending on how it is invested, and you usually have the flexibility to withdraw the funds within a few days if needed. The reality is that when you don’t let your money work for you, you hinder your financial growth.
Allowing your cash to sit in a savings account right now is effectively not much different than putting it under your mattress. We know that currency depreciates due to inflation, which is why when you allow money to sit in your savings account, you’re not giving it much potential to grow. At the very least, high-yield savings accounts such as money market accounts provide you with more benefits than storing cash in a regular savings account. It’s important to remember that not making a decision about what to do with your money is, by default, making a decision.
Work With a Financial Planner
It’s essential to establish good financial habits when you’re young, but it’s never too late to get in the driver’s seat of your wealth management plan. We at SCM Investment Services are here to support you, whether you’re still working or already enjoying retirement.
Are you ready to make the most of your financial journey? To schedule a complimentary introductory meeting or request a free financial health checkup, call (219) 225-1934 or email dejan@scminvesting.com.
About Dejan
Dejan Ilijevski is Financial Advisor, Investment Manager, and Founder of SCM Investment Services, an independent, fiduciary, fee-only financial advisory and investment management firm based in Lake Elmo, Minnesota. With an evidence-based approach to investing grounded in economic theory and reliant on insights from financial science, he customizes globally diversified portfolios of mutual funds and ETFs for his clients. With 20 years of experience in the trading/financial services industry, and described as trustworthy and community-oriented, Dejan is passionate about helping individuals and families, prioritizing their best interest first and foremost.
Originally Dejan pursued a career in research and technology but was recruited by a startup trading firm at the Chicago Board of Trade. He took advantage of this rare opportunity, curious to learn more about capital markets. Dejan’s technical background provided a unique skill set, and by the end of his rookie year, he routinely transacted over $1 billion in U.S. Treasury notes daily, making him one of Chicago’s biggest bond traders. He consistently earned the highest profits for the firm for many years and continued to advance professionally in the trading arena.
With newfound experience and insight, Dejan came to realize his parents were being exploited by their financial advisor and that the financial services industry does not work in your best interest. After earning his MBA from the University of Chicago Booth School of Business, Dejan left the trading industry to start an independent financial advisory firm based on integrity and transparency and built on the belief that everyone deserves trusted, knowledgeable financial advice—blending Wall Street expertise with Main Street values.
Serving the broader community as an investor advocate, a proponent for financial literacy, and sponsoring nonprofit initiatives, Dejan is a trusted subject matter resource for many financial news media publications. He and his wife, Daniela, reside in Munster, Indiana, with their two kids. In his free time, he enjoys road cycling, reading, playing soccer, traveling, going on adventures (even skydiving!), and serving local charities. To learn more about Dejan, connect with him on LinkedIn.
