Published on March 18th, 2014 | by Josh Hafner
Four ways to get your money right
Financial adviser Mike Banasiak and personal finance expert Tahira Hira offer simple ways young people can start saving, investing and planning for their futures.
“It’s going to differ for each person’s situation,” said Banasiak, “but the rules of thumb are sound financial principles that have lasted over the course of time.” ALSO: We asked three central Iowans how they recently blew $200 to get a small glimpse at young professionals and their money.
1. SAVE FOR AN EMERGENCY FUND
The first thing you should do is pile up funds in a bank account that is easily accessible and waiting for a rainy day. Cars break down. Pets need vets. People lose jobs. Hira recommends setting aside 10 percent of your paycheck to build up funds for when something goes wrong. Save up until your emergency fund equals four to six months of your living expenses, Banasiak said: “Because of the recession and the shaky job market, people are realizing it’s important.”
2. LOOK TOWARD RETIREMENT. NOW.
If you work for an employer who offers a benefit package, study it. Know it like the back of your hand and use what’s available while you’re young, specifically retirement savings plans like a 401(k).
“As early as possible, start putting money into a retirement account,” Hira said. “Whenever you start, it’s always too late.”
That’s because compound interest is a magical force (read: simple math) that favors the young.
Say you’re 30 and make $40,000 a year. If you start throwing 10 percent of that cash into a retirement account with an 8 percent rate of return, it will grow to about $770,000 by age 65. If you started saving just five years earlier at age 25, you’d retire as a millionaire. See? Magic, sort of.
RELATED: How to be good at money
Budgeting is sort of a dirty word, Banasiak said: “Nobody wants to discuss it. Nobody wants to sit down and do it. We don’t want to know where every penny goes.”
But you should. Track your expenses for a while using a smartphone or notebook to ensure you’re spending less than you make.
The process looks different for everyone, but know your parameters, Banasiak said: Save 10 percent. Spend no more than 25 to 30 percent on housing. And those $100 shoes you don’t need? Consider investing that money instead, Banasiak said. That $100 could grow to $1,500 by the time you retire. (Magic!)
4. CONSIDER A FINANCIAL ADVISER
Don’t just settle for the first one on Google. Ask friends and colleagues in your same life stage for recommendations. But do consider having an expert guide your money and help you reach goals along the way, said Banasiak, a certified financial planner. Think of advisers like doctors, he said: Some people spend time self-diagnosing their illnesses on Web MD. Others go to a trained doctor.