Introduction
You’ve graduated and are searching for - or have landed - a great job. Maybe you’re even engaged or newly married. You might be living in your first apartment, your first house, or even adding children to your family.
But wait! What do you need to do in order to get your post-schooling finances together, and how do you do it? Why didn’t they teach this stuff in high school?
Don’t worry. There are easy-to-follow steps to planning a bright financial future for yourself - ones that you may enjoy right now as well as 40 years from now when you retire. In this eBook, you’ll learn how to:
Find a job you love and earn an income that you can actually live off.
Paying off debt like student loans, car notes, and credit cards using either the debt avalanche or the debt snowball approach.
Save for emergencies so you don’t have to put unexpected expenses on credit.
Invest early for retirement to take advantage of the power of compound interest.
Get ready, because your future is now and there’s no better time than today to reap the benefits of smart money choices.
About Me
Hi, I’m Paul Snow. I’m a Northshore financial advisor who’s been helping Louisianans plan for their futures for 25 years. I’m passionate about helping young people plan for their financial futures, especially with all the uncertainty of our times.
Tip #1: Find a Job You Love to Increase Your Opportunities for Career Advancement and Success
Sometimes, you need to land a job quickly to make ends meet. There’s nothing wrong with doing this for the short-term. But one of the keys to having a successful career with opportunities for advancement and pay raises is to find a job you’ll love.
Some jobs just aren’t loveable. You may currently be working a job that is too long of a commute from your home, has hours that don’t fit with your personal and family life, or is at a company that isn’t a good cultural fit for you. That’s okay. The key is to always be seeking the right opportunity to come up and to be ready to apply as soon as it does.
In your 20s, you should:
Be active on career social media sites like Handshake and LinkedIn so you can meet others in your career field - or the field you want to work in - and find out about job opportunities. Keep in mind, lots of people on career social media sites will look for a new hire recommendation from their own connections first before posting an official position announcement.
Keep your resume updated. During your 20’s, your job responsibilities are most likely growing all the time. Make sure to update your resume every three months so it’s ready to send as soon as you find out about a career opportunity for which you want to apply.
Soak up everything you can about where you work, or where you want to work. Read blogs in your industry and follow your favorite companies and professional organizations on social media, too.
What to Do When You Don’t Know What You Want to Do for a Living
It’s completely normal for you to not be 100% certain what type of career you want long-term. That’s okay. If you’re not sure what you want your career to be yet, then:
Secure a job that will help you make ends meet while you research career fields.
Look for jobs in industries that you think you might want to work in for the long haul to see what the work environment is like.
Think about what skills you have - or want to acquire - that can be useful in the marketplace. For example, if you love talking to people, you may love a career in sales. If you love helping people, perhaps a career in healthcare is right for you.
Follow blogs and social media to research industries that are interesting to you.
Talk to your friends and family, many of whom are starting their careers, too.
Tip #2: Pay Off Debt Using Either the Debt Avalanche or the Debt Snowball
Most young adults have some form of debt. You may have student loans, credit card bills, or a car note. One of the biggest barriers between you and financial success is your monthly payments. After all, the money you pay someone else is money you can’t pay to yourself and save or invest.
In the financial world, there are two popular methods for paying off debt: the debt avalanche and the debt snowball.
What is the Debt Avalanche?
The debt avalanche is a debt repayment plan that’s focused on paying off debt while simultaneously paying the least amount of interest possible. If you want to pay off debt while paying the least amount to do so, you should consider the debt avalanche. Here’s how to do so:
List out your debts from the highest interest rate to the lowest interest rate, regardless of the accounts’ balances. If two debts have the same interest rate, place the debt with the lowest balance first on your list.
For everything but the first debt on your list, pay only the minimum payment.
Pay as much as possible on the first debt on your list (this will be the debt with the highest interest rate) every single month.
Once the first debt on your list is paid, take the money you were paying towards it and apply it - and the minimum payment you were already paying - to the second debt on your list. Keep following this formula until all your debts are paid.
What is the Debt Snowball?
The debt snowball is a debt repayment plan that is focused on paying off a single account as quickly as possible. With the debt snowball you pay off your debts from the smallest balance to the largest balance. Here’s how it works:
Make a list of all your debts, putting them in order from smallest to largest. If you have two accounts that are the same balance - or very close to it - put the debt that has the highest interest rate first.
Just like with the debt snowball, only pay the minimum payments for everything but the first debt on your list.
Put all extra money you have in your budget every month toward paying off your smallest debt.
When you’ve paid off your smallest debt, apply that monthly payment to the second debt on your list - and then so on - to get your debt snowball rolling.
Debt Avalanche vs. Debt Snowball - Which is Best for You?
From a purely financial standpoint, the debt avalanche lets you settle all your debts while paying the least amount of interest - and thus lets you pay off debt for a lower overall cost than the debt snowball. This is why the debt avalanche is so popular; it helps you pay off debt while saving the money that you would otherwise be paying toward high-interest accounts.
However, paying off debt isn’t fun. And depending on how much debt you have, it may take a while to do so. Some people find that the debt snowball - which helps you close accounts quickly - gives them the motivation they need to stay focused, even though they may ultimately end up paying more in interest.
Tip #3: Save 3 to 6 Months’ of Expenses for Emergencies in a High-Yield Savings Account
Life is full of the unexpected. Your check engine light comes on, you may get sick or injured and have unexpected medical expenses, or your computer might die. And as we’ve seen with the pandemic, sometimes we lose hours at work, or our jobs altogether.
Experiencing an emergency can be stressful - both emotionally and financially. But by planning in advance, you can take the financial stress of an emergency off your plate by having an emergency fund.
What is an Emergency Fund?
An emergency fund, or e-fund as many people call it, is a savings account that you set aside and only use when you have an unexpected emergency occur. E-funds shouldn’t be used for planned expenses like vacations, or wants, like an Xbox Series X or a new pair of shoes. Instead, an e-fund is meant to be saved, set aside, and used to avoid racking up debt to pay for an emergency.
Your emergency fund should be 3 to 6 months’ worth your monthly expenses. Exactly how much you save depends upon your unique situation. Generally, you should lean more towards saving 6 months of expenses if:
You’re single or have a single-income household. When there’s only one paycheck coming into your checking account, you should save more of it for emergencies.
Your income is variable. If your work hours fluctuate or you get paid on commission, it’s a good idea to have a bigger e-fund.
You have a medical condition that may necessitate an unexpected leave of absence from work. This is especially true if you don’t have disability insurance.
Where to Save an Emergency Fund?
By design, an emergency fund isn’t an investment. It’s more like insurance you save for yourself for when the unexpected happens. But that doesn’t mean you need to save it in a brick-and-mortar bank’s savings account where it will earn very little interest.
Instead, research high-yield savings accounts - many of which are offered at online banks - or a money market account and look for the highest interest account possible. A money market account is a savings account that has aspects of a checking account, and typically pays more interest than a traditional savings account would.
Wherever you ultimately save your emergency fund, make sure you have a debit card for it so you can quickly use your funds to pay for emergencies as they happen.
Tip #4: Save 20% of Your Income for Your Future
The best way you can have a great financial future is to pay yourself first. This means you should save 20% of your income to invest into your retirement funds, purchase a home, and buy additional investments such as non-retirement brokerage funds, rental real estate, or land.
Start Investing in Your Retirement Funds Early
If you think that, since your retirement is 40 years away, you don’t need to worry about it yet, you’re wrong. Consider this example.
Zack starts investing $500 into the stock market every month the year he turns 25 and continues to do so for the next 40 years. If you estimate an average annual return of 8%* Over the next 40 years, Zack will have $1,745,502 at age 65.
Cole, however, waits to invest until he’s 35, and keeps investing this amount every month for the next 30 years. He invests the same $500 a month as Zack. You would think since Cole only invests 75% of what Zack does, he would end up with a retirement fund that is 75% the size of Zack’s. However, Cole only ends up with $745,179 - less than half of Zack’s retirement fund.
What happened?
Zack had the power of compound interest working for him.
What is Compound Interest?
When you invest in the market, you don’t only earn interest off your contributions. You also earn interest from the combined total of your contributions and your previously earned interest. The earlier you start investing, the more compound interest you can earn.
This is why Zack’s retirement fund is more than double that of Cole’s. Zack started investing early and therefore earned more compound interest than Cole.
What to Invest In?
There are two types of retirement funds you should know about - a 401(k), which is offered through work, and a Roth IRA, which you can invest in through a financial advisor like me.
401(k)
401(k)s are funded with pre-tax income. You fill out a form to tell your employer what percentage of your paycheck to invest every month, and your contributions are automatically deducted from your gross pay every paycheck. You can contribute up to $19,500 into your 401(k) every year. You can start withdrawing from your 401(k) at age 59.5, and you’ll be taxed on the disbursements
*This is a hypothetical illustration and is not intended to reflect the actual performance of any particular security. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions
Roth IRA
A Roth IRA is funded with after-tax income. You can open a Roth IRA with a financial advisor like me, and we can set up your contributions to auto deduct from your checking account every month. You can contribute up to $6,000 to a Roth IRA every year. Since you contribute money to a Roth IRA after you have paid taxes, your Roth IRA disbursements, which you can begin to take at age 59.5, will be tax free.
How Much to Invest Specifically in Retirement Accounts
It is generally recommended to invest at least 10% of your gross income into retirement. To maximize your growth potential, one strategy is to:
Invest in your 401(k) only up to the match. This automatically doubles your investment.
Take the rest of the money you are going to invest for retirement and invest it in a Roth or Traditional IRA because they are tax- advantage accounts. I can help you open and manage this account.
If you both invest in your 401(k) up to the match and max out a Roth IRA and still have money to invest for retirement, meet with me to discuss a personalized retirement plan for you.
How Do You Choose What to Invest In?
When it comes to choosing what to invest in, the world is your oyster. You can choose to invest in single stocks, mutual funds, exchange-traded funds (ETFs), bonds, and more. You should choose funds that are growing based on their past performance, though even that data can’t predict what your investments will do in the future.
Your investments need to be balanced to meet your risk tolerance level. Some investments are more risky than others. The performance of single stocks has historically been more volatile than the performance of bonds.
Everyone has a different comfort level with risk. I typically recommend you invest in higher risk investments while you are younger, and gradually reduce your exposure to risk over the years.
As a financial advisor, I study equities to evaluate which ones are growing, and which investment options best fit into different risk profiles. By meeting with me, I can help you determine what you want to invest in now, and we can evaluate performance at a minimum once a year.
What’s Next?
Whether you have any questions about this information, or you’re ready to start investing, I’m here to help. You pay no out-of-pocket fees for my services. I get paid a small percentage of your investments.
You can reach me by calling (985) 792-5232 or emailing paulsnow@snowgroupllc.com.
Any opinions are those of Paul Snow and not necessarily those of Raymond James.
An investment in a money market fund is neither insured nor guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
Investors should consider the investment objective, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other important information, is available from your Financial Advisor and should be read carefully before investing.
Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information.
Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.
Investment products are: Not deposits. Not FDIC Insured. Not guaranteed by the financial institution. Subject to risk. May Lose Value.