3 Reasons Gen X And Gen Y Flounder At Financial Planning -- And How To Avoid Them
Generation X and its follow-up, Generation Y, deal with some daunting financial prospects. Things like a major recession, lack of confidence in financial systems and too many competing pressures for their money make it hard for Gen X and Gen Y to make a workable financial plan. But you can avoid the biggest financial mistakes many of your peers make. What are they? Here are 3 of the most common financial errors you can start fixing today.
Not Saving Enough
A lack of savings plagues America in general, but Gen X faces the likelihood of being the first generation not to receive full Social Security benefits. If, as may happen, only about 3/4 of benefits will be payable as early as 2035, retirement saving is even more important than ever. However, many within Generation X prioritize putting money toward other goals instead --such as college savings for children, recreation and vacation savings or education costs.
How can you avoid this mistake? Recognize that planning a sound retirement for yourself actually helps your children in the future. Participate in any employer-provided retirement options you have -- particularly by ensuring you receive the full company match in your 401(k) plan. Consider decreasing payments made for such things as lower-interest student loans and reducing the amounts of vehicle and housing payments to free up money.
Being Conservative
Those of Generations X and Y who do participate in savings for retirement or other long-term goals also tend to make the error of being too conservative when it comes to investment risk. The stock market hasn't been performing particularly well in the last 2 years, but it's still doing better than many even more conservative options -- such as bank accounts, CD rates and bonds. As a young investor, you should be using this time to increase your exposure to risk and getting a larger reward for it.
If, like many others, you fear stocks after the Great Recession, there are a few things you can do. One of the biggest aids is to educate yourself about the market and reduce its mysteriousness. By knowing how to choose stocks or mutual funds that fit your risk tolerance, what various investment terms mean and how to look at your retirement investing as a long-term project, you can feel more confident in putting your money away. Many young people also diversify by looking for alternative investments, such as local businesses, hard assets or focused mutual funds like REITs (real estate investment trusts).
Not Getting Help
Going it alone is the most likely way Gen X and Gen Y do their financial planning. This is partly due to the fact that many financial planners don't offer enough low cost or low asset planning options. But waiting until your portfolio reaches higher amounts -- usually a minimum $1 million threshold -- means losing valuable time when better choices could be made. Much of your financial decision-making is done before the age of 40, so it's important to get help formulating a plan as early as possible.
How can you get help? Informal financial planning education may be available for free through your employer, local credit unions or banks and your brokerage company. But when you reach the point of seeking paid help, look for a fee-only financial planner or one that charges by the hour (rather than for the amount of assets under management). Some financial planners are recognizing that people under 40 are an underserved community and are developing ways to focus on your needs instead of the traditional model.
By knowing what mistakes people tend to make at this stage of life, you can counter them with better financial decisions. Whether it's changing your savings goals, educating yourself about risk or seeking out professional assistance, you can take positive steps starting today to plan for a better tomorrow. Contact a business like Bauserman Financial Services Inc to learn more.