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Financial Success for Millennials: 7 Steps To Take Now

Reduce your financial anxieties and yield long-term success by following these few steps!

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When it comes to investment management and financial planning, there are definite steps to take that will both reduce your anxiety and lead to success in the long run. In life, learning what you need to do can be easy, but doing it is the hard part. The same holds true in personal finance. It’s never too soon to start building wealth and following these seven foundational steps can make a huge difference in your financial wellbeing:

1) Don’t borrow more in student loans than what you will earn during your first year working. If you expect to make $50k in your first year after graduating, do not borrow more than $50k to get that particular degree.

2) When paying back your student loans, be sure to choose the best option. Typically, you will fall into one of three categories. Refinance upon graduation and pay your loans back within 10 years, take advantage of the government’s income-based repayment plans, or qualify for debt forgiveness. If you plan to pay your loans back in full, refinance them to get a lower rate and pay them off in less than 10 years. If your interest rate is 5% or higher, strive to pay 30% of your income per year towards your loans. If it is lower than 5%, pay 20% per year. If you have low income, choose an income-based repayment plan. If you plan to work in the public sector for 10 years, choose the debt forgiveness program.

3) Rent, instead of own. You may have heard that homeownership is a good investment, but this is not true. Renting is a smarter financial move. Residential real estate has averaged just 0.4% in return per year over the past 100 years when you account for inflation. When you factor in all the costs of owning a home, the return drops to -10.8% per year! Generally speaking, renting and investing saves you more money than owning a home.

4) Start investing for retirement as soon as you start earning a paycheck. As soon as you start working at a job, invest at least 10% of your gross income per year into a retirement account. This will allow you to provide for your retirement at the standard of living to which you are accustomed. Albert Einstein said that compounding interest is the greatest force in the universe. The sooner you start investing, the sooner you put that force to work for you.


5) Choose the Traditional 401k instead of the Roth 401k. The Roth 401k is frequently said to be the best choice, but this is not true. Choosing the Traditional 401k instead of the Roth 401k will almost certainly mean that you will pay more in taxes during your lifetime, but it also means that you will have significantly more net worth, both during your lifetime and for your heirs. A simple rule of thumb for choosing which one is right for you: If you are single and have more than $40k of adjusted gross income (AGI) or if you are married and have more than $80k of AGI, choose the Traditional 401k instead of the Roth 401k.  

6) Get help from a fiduciary. Fiduciary is quite arguably the most important word in wealth management, yet few people are familiar with what it means. The word fiduciary originates from the Latin word, fidere, which means “to trust.” Fiduciaries must put their interests completely aside, doing what is best for you at all times. This is a high calling, as fiduciaries must ensure that all of their advice is based upon best practices, as anything less will result in a violation of fiduciary duty, which will bring stiff penalties. Because of this, fiduciaries tend to be the most educated practitioners in financial advising, as they must have the expertise to ensure that they can legally back up their advice to you, which in turn leads to a better wealth management result. Unfortunately, less than 15% of financial advisors and advisory firms are fiduciaries, so selecting the right advisor isn’t easy. Start by asking if the financial adviser is a fiduciary all the time, in every circumstance for you. Some advisers and firms will act as a fiduciary for one area of wealth management, like financial planning, but not for investment management. In general, financial advisors who work for a bank, broker-dealers like Merrill Lynch, or insurance companies, are never full-time fiduciaries. Check the firm’s website and if you see a disclaimer on the page that says something like, “Securities offered through XYZ Securities, Inc.,” or  “Member FINRA/SIPC,” then the financial advisor cannot be a fiduciary for you all the time. Firms that are fiduciaries will prominently display that fact on their websites and there won’t be any disclaimers.

7) Select financial advisers with the proper certifications. When selecting a financial adviser, there are three certifications that matter the most. For financial planners, ensure that they are a Certified Financial Planner, CFP®. When hiring an investment investment manager, be sure they have either the CFA® or CIMA® certification. Choosing the right advisor will make a significant difference in your net worth and peace of mind, so take your time doing research, and do not select someone simply because you know them.

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