Whether you just started your first job out of college or already have a job and a brand-new retirement account, it’s never too soon to start thinking about how the investment decisions you make now will impact your future. You immediately face a lot of pressure to find any job when you graduate. Sometimes that’s a hard call because you also may be faced with a job you like but don’t love. That’s okay. You can still gain valuable experience that will give you more career options after just a couple of years, and you can start setting your finances on a course for future success.
Some rules are easy to remember. Start a retirement account through your employer. Try to find an employer with 401(k) matching benefits. Always contribute to your retirement account from every paycheck. Find out what other benefits and discount perks are offered through your company to avoid spending cash. Most publicly traded companies offer employee stock purchase plans (ESPPs). Keep this in mind if you aren’t ready to invest in it right away. A few small but critical decisions can get you on a strong path to investing, even in your 20s.
Balancing investing in your 20s with funding new purchases
Life can throw you some curveballs. You may suddenly need major repairs on your car or a big deposit on a new apartment. When you’re just getting started, unexpected expenses can easily get you off track financially. How do you pay for these things? If you don’t have the savings or don’t want to deplete everything you have, you may be forced to charge a bill to your credit card or borrow temporarily. This can have consequences for you down the line. Instead, consider taking a second job or seasonal work to pay off the debt, or to buy that new bike or gadget. This ensures that you aren’t demolishing your savings or facing a growing interest on your bill.
Is there something fun that you’d love to do, but you can’t afford it on your current income after paying bills? Try planning trips with friends in advance so you won’t be caught off guard by the costs. The Fear of Missing Out (FOMO) can get you down if those concert tickets cost too much or that plane ticket for your trip to Mexico suddenly shoots up. There are ways you can cut costs that give you the option to save and still participate in the activities you love.
Budgeting for cost of living
The cost of living (COL) in some counties in the San Francisco Bay Area can rank as the highest in the country. At around $3500 per month, you need a very competitive salary to afford a 1-bedroom apartment in San Francisco. That’s $42,000 a year, not including utilities, transportation, food, and parking expenses. The Department of Housing and Urban Development (HUD) determined in 2019 that anything under $82,200 per person in San Francisco or Marin counties is under the poverty line! Many people share apartments for this reason. Qualify your roommates thoroughly before you lease with them. A poor choice in a roommate could dramatically change your life overnight.
Also, check on websites such as Funcheap. Funcheap San Francisco does locals a valuable favor. They track event promos and early bird ticket pricing to events like chocolate festivals, comedy nights, and restaurant weeks in the Bay Area. You must admit it’s fun when you and your friends can save money and still have a great time out. With a little bit of ingenuity, you can come up with options other than staying in to save money.
Starting out small establishes habits for life
One thing is certain: there is nothing that can change the time-value of money. When you’re investing in your 20s, you have as much time on your side as you will probably ever have. But, if you live in an expensive and competitive area like the San Francisco Bay, the pressures grow that make it harder to develop a consistent habit of saving. Things that can impact you include:
- Large apartment deposits
- Rents that consume a huge percentage of your salary
- Salary increases that lag cost of living (COL) adjustments
- State and local taxes (SALT)
- Transportation, parking, and travel
The most valuable way to address some of the pressures that life tosses at you is to connect with others who share the same challenges and exchange ideas. Many people live only one paycheck from not being able to afford rent. What can you do to change that dynamic?
Choosing a financial advisor, even in your 20s
You may need to make some sacrifices early on for more long-term financial security and protect yourself from already inflated monthly expenses. One way to do this is to choose a financial advisor who is already experienced in navigating the challenges you face with investing in your 20s. You may think that hiring a financial advisor is expensive and that you don’t need one yet. It may be more costly if you don’t make all the necessary decisions as you’re just becoming established, but firms like SD Mayer have the tools to help you make key decisions early on to better ensure your success, including podcasts and ebooks that are full of amazing information.
If you’re in your 20s and are just starting to think about setting yourself up for success financially, consider talking with an experienced wealth advisor. SD Mayer advisors have decades of experience helping young adults like you with investing in your 20s (and your 30s, 40s, 50s, and 60s too!), so that your life can go in exactly the direction you want it to. To learn more or to set up an initial consultation, contact us.