Millennials are the apples of the the financial-services industry's eye. We are in a position to inherit the wealth of the baby boomers, and we are on the rise in the business world. Banks, broker-dealers and other institutions are keeping watch to benefit from the generation that's becoming the next big source of their customers.
The problem is many millennials were coming into adulthood amidst a global financial crisis at a time when their parents may have lost 50% or more of their long-term savings. It has forced this generation to ask ourselves "What can I do to avoid a similar fate?"
As a fellow millennial and a financial professional, my firm has helped many younger people to grow their assets and make wise financial decisions. Here is what we tell them about how to begin the process of improving their financial future:
1. FIRST COMES FIRST: CASH FOR A RAINY DAY
Is it important to save? Is water wet?
You must remember that a cash cushion can create options, power and comfort. While holding cash in a secure liquid account is unlikely to generate meaningful returns, should markets have a significant decline, it could provide you with valuable security and financial flexibility.
Consider saving at least six-months worth of living expenses, but also try to keep some additional funds on the side within your long-term savings plans. You can't quantify the value of the knowledge that you'll be able to sleep at night during a downturn.
2. WRITE DOWN YOUR GOALS
It sounds simple, but so many people do not do this. People who write down their goals tend to have a much higher rate of accomplishing them.
Dr. Gail Matthews from Dominican University did her own study called the “Goals Research Summary” and found three key elements to successful goal setting: accountability, commitment and writing down one's goals.
This is no different with finance – document what you want to do.
It doesn't matter how young you are. Your goals may change with time. Realize that they must be measurable and real. Plan your preferred retirement age and lifestyle – when do you want to retire, and what do you want your retirement to look like?
Plan your financial goals for your children, if you currently have them or plan to have them someday, and maybe how much you want to donate annually to charity. Put these objectives down on paper, refer back to them at least a few times each year and revise them when appropriate.
3. ROTH IRA
You will have many opportunities to put money into places where they will be taxed on the capital gains or as income, including your home, your business and most of your retirement accounts, just to name a few.
Talk to your tax adviser and other financial professionals to see if it makes sense for you to open a Roth individual retirement account and make the maximum contributions while you are able. There's a reason that there are limits on who can make such contributions – Roth IRAS are one of the few retirement vehicles in which one can enjoy a stream of tax-free retirement income.
4. HIRE AN ADVISER – AND I DON'T MEAN YOUR PARENTS
Hiring a financial adviser doesn't have to be expensive. There are many different types of professional advisers out there, and there's at least one who is a good fit for you and your needs. Take your time, and ask your peers who they are working with. Interview a few advisers and build a relationship with the one who is right for you.
Many millennials have a propensity to discuss money with their parents. This is not a bad idea, and in many families it will happen regardless of whether or not parents and children have a relationship with an adviser. However, you should also have an adviser as a professional with expertise and resources who will look at your situation more objectively. Take advice from various sources of trusted counsel and then make your own decision.
5. REMEMBER THAT YOU ARE YOUR OWN GREATEST ASSET
When you move into your first job or advance in the working world, it's easy to get caught up in the idea of seeking to aggressively grow your assets. The problem is many people do this without considering that a job loss or life event could prevent them from accomplishing their goals. It's wise to protect against risk with applicable insurance.
If you qualify, disability insurance can help to protect your income if you can't work, and life insurance can help to protect your family if something should happen to you. Don't scrimp on protecting your loved ones or your income.
Millennials are the future. We are a unique group, and we are still learning and growing into our identities. We need to make sure that we respect our financial abilities and learn from the past, both in terms of what to do and what not to do. Learning from the mistakes of others is much more economical than learning from our own.
Taylor M. Sledge Jr. is the founder and chairman of financial strategy firm Sledge & Company.