Millennials are a strange generation. They are diverse, savvy, and large in number. They entered adulthood just as the American economy was hitting its lowest ebb in a generation. They earn less than their parents and grandparents, but many of them save a lot more. 30% of them work in the “gig economy”, well outside of a career path offering retirement options. Despite this, many of them plan to retire earlier than earlier generations, having learned to live on less.
The Importance of Long Term Financial Planning
For people like this, long term financial planning is a must. Modern investment theory tells us that almost anyone can retire a millionaire, if they manage to live like a monk and save huge percentages of their income. But this kind of action requires a change of mind. Most young people aren’t living in such a way that they will be able to retire comfortably, much less early. And while talk of investment brokerage and life insurance companies might seem like it won’t be relevant for many more years to come, it’s still important for young people to learn about these things.
Even if you don’t plan to open up a life insurance account soon, it’s important to know what one is and how you plan to use it when it is appropriate for your financial life. The same is true of investment. The average Millennial might struggle to max out their IRAs each year, but without firm knowledge about why this is a good course of action, they definitely won’t be able to accomplish it.
Getting Started Sooner Rather Than Later
In every case, positive financial actions performed early in life pay off greater dividends than those performed late in life, all things being equal. This is true of other things in life as well. When people work to get physically fit while still young, they stand a much greater chance of staving off chronic diseases that often develop in adulthood. The same is true for finances. When you invest money early, it has a lot more time to grow and compound upon itself. The longer compound interest has to mature, the more powerful it is.
Case in point, (assuming 10% annual growth) $10,000 invested looks a lot different depending on how long it is invested before being withdrawn. If an investor lets $10,000 sit for 10 years, invested in total stock market ETFs, the money will grow to $25,937.42. If that same $10,000 were to sit for 30 years, $174,494.02 would be the final sum. That’s without any additional contributions along the way. Now if you were able to make yearly contributions (say your annual $5500 IRA limit, for example), you’d be able to earn a lot more than that in that same 30 years. But that’s another conversation.
The important thing is to start having these conversations. You might feel like your are young and unbreakable, but if you want to be prepared when your youth and health wear off, you’ve got to think about preparation now, at this point in your life. Start learning now, and you’ll be more than prepared when you’re out of options.