Money is difficult.
Or at least that’s how it seems to be when you’re a young adult. You wonder where to live (and how to pay for it) and just start your career. Things like pension funds and investment accounts may seem a long way from where you are right now.
But trust me, you want to start thinking about your finances now.
So where do you start? How do you manage your finances in a way that makes sense for your future and at the same time allows you to live the life you love right now?
The first step is that instead of sticking to just one financial account, you need to make sure you have variety – and set them up sooner rather than later – to achieve what you want.
Why should you have multiple financial accounts?
Whether it’s a short-term or long-term goal, every financial goal has to start somewhere. And since each financial goal is unique, it makes sense to use different accounts or tools to achieve it.
For example, you don’t want to worry about retirement savings in your regular savings account where interest rates are low. Instead, you should keep your money in a 401(k) or Roth IRA where you can watch your money grow much faster thanks to the power of compound interest.
Financial Accounts Every Generation Z Should Have
Below is a list of all the accounts you must have as Gen Z — and yes, even a retirement account is included. If you don’t already have all of these, no big deal. Some of them, such as an emergency fund, may be out of your budget right now when you are just starting your business.
Read more: 5 steps to create a budget that really works
Just work through the list and open each if you have the financial means. And keep reminding yourself that it’s never too early to start working on your future.
Chances are you already have a checking account (unless you keep money in a shoebox under your bed).
Checking accounts is a way to access your cash by keeping it in a safe place at a financial institution (rather than in a shoebox under your bed). You can access your money at any time with a debit card without worrying about how much cash is in your wallet, although it’s always good to know how much money is in your account.
Checking accounts are also a great way to cash out your paycheck without paying fees – most banks allow you to use a direct deposit from your employer into your checking account with no fees.
Read more: The best settlement accounts without commission
Savings accounts are next on my must-have list. Why? Because it is a great place to hide money for both short term and long term purposes.
A savings account is usually linked to a checking account from which you can transfer money to a savings account.
If you have a savings account with a credit union, you may have to go in person to deposit a check or cash, but otherwise most savings accounts are easily accessible through online banking or a banking app.
I have several savings accounts that will help me achieve various goals, such as a trip I am planning.
Read more: Comparison of the best high yield savings accounts
An emergency fund is a special savings account that you use for emergencies. Only. I’m talking about things like your car breaking down, suddenly having to move because your landlord sold your building, a pet getting sick, or anything else that you didn’t plan on but have to pay for.
Having cash to bail out during a crisis can save you in the long run as you won’t have to worry about putting credit card expenses or taking out a personal loan. The emergency fund covers your future self without a second thought.
Just remember: reserve fund No savings account to book a vacation or to use as extra money!
Not sure how much to put in your reserve fund? Use our reserve fund calculator.
Read more: Reserve funds: everything you need to know
Investing is essential and you are never too young to start, especially when the power of compound interest is on your side. But where to start?
I recommend going with a robo-adviser.
A robo advisor is a financial institution that manages your money on your behalf. Previously, you had to open an investment account through a traditional broker – and starting amounts could vary from a few hundred to several thousand dollars. But robot advisors have made investing more accessible to everyone, and sometimes you can start with as little as $1.
Robo-advisers can create a financial plan for you based on how much risk you are willing to take. All you have to do is sit back and watch your investment grow.
Read more: The best robo-advisers
Your company 401(k)
Speaking of investing, if you haven’t already, you need to invest in your company’s 401(k) plan (assuming your company offers one).
A 401(k) is a retirement savings plan offered by your employer at no additional cost. A predetermined amount of your salary (before taxes) is invested on your behalf. You can choose how you would like to invest your money, such as index funds or individual stocks.
The main difference between your 401(k) and a regular investment account is that you have to wait until you retire to access your money. Yes, retirement may seem like a long way off, but in the future, you’ll be grateful that you signed up for a 401(k) now. Time is on your side so use it.
Read more: $1 Million 401(k) Investment Strategy for 20- and 30-Year-Olds
The great thing about investing in your company’s 401(k) is the power of compound interest. Compound interest is the interest you earn on any investment income you have already earned. Simply put, it is the interest you earn on interest.
So, if you invest $10 and your $10 turns into $1, you will now earn $11 in interest. This amount automatically increases the longer your money is in the account.
To test the math on your own investments, use our compound interest calculator.
The last financial account I recommend is the Roth IRA.
A Roth IRA is an Individual Retirement Account (IRA) that you self-fund with money you have already paid taxes on. This means that, unlike a 401(k), you don’t have to wait until you’re 59½ to withdraw money from it.
However, there is early withdrawal penalty – with some exceptions such as buying your first home, returning to school, or the cost of a birth or adoption.
As with the other investment accounts mentioned, your money is invested on your behalf, but you have complete control over who manages your money. You can also max out an IRA with a much smaller amount than your 401(k), so if quick wins keep you motivated, this account might be for you.
Read more: Roth IRA for young people: why early start pays off
Okay, we know that no one likes to think the worst. Especially at your age when you have your whole life ahead of you. But just like with emergencies, bad things can happen and you’ll want your family to be insured. In addition, the younger and healthier you are, the lower the life insurance rate.
Life insurance is a legally binding contract that says that in the event of your death, the insurer will pay out a certain amount of money to your beneficiary (the person you designate as the beneficiary). This money can cover funeral expenses, offset any loss of income if you have dependents, and can be used to pay off any outstanding debt you’re responsible for – so if your family signs up for a loan, they’re not stuck in the bill. .
Read more: Life insurance: is it worth it and when is it needed?
You are never too young to start saving, and different financial accounts can help you get through the next stage of life, whatever that may be.
By diversifying your money, you will have more control over reaching your financial goals and be one step ahead of the rest when it comes to important life events, no matter what schedule you choose.
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