Both Gen Zs and millenials, according to a 2023 Deloitte survey, are more concerned about the high cost of living than they are about unemployment or climate change. Half of both groups are living paycheck to paycheck, and the economic uncertainty of the past year has led both groups to postpone big life decisions, such as starting a family or buying a house.
Faced with economic uncertainty, Suze Orman, a prominent investor and author, has a series of tips targeted toward younger people to help them move toward financial freedom.
Be Cautious About Needs
A common piece of financial advice involves drawing the line between needs (a car, for example) and wants (yet another streaming service subscription). But Orman goes further, saying that young people should cut back their spending on needs wherever possible.
“The goal should be to spend the least amount necessary to fill their need. Sure, everyone wants a new car, but a less-expensive reliable used car is the far smarter move. That will leave you more money for other goals,” Orman wrote. “Same goes with a home. Don’t stretch into the too-expensive home; that often turns into a financial regret. Buy the home you can comfortably afford.”
Adjust Your Investing Goals
A recent report revealed that 56% of Gen Zs currently hold some form of investment; of those, more than half are primarily invested in cryptocurrency, a high-risk venture that British government officials said more closely resembles “gambling than a financial service.”
And while short-term payouts can be exciting, Orman said that young investors should design their portfolio for goals that are at least a decade away.
And diversifying that portfolio is of paramount importance.
“My advice for people starting out is to stick to a low-cost index mutual fund or ETF that tracks a broad US benchmark,” she said.
Investing For Retirement
Part of financial freedom involves preparing for retirement, even if that feels like a long way away. The most common way to do this is through an employer-sponsored 401(k) plan.
A traditional 401(k) allows people to contribute pre-tax. But a Roth IRA or 401(k) allows people to contribute post-tax, something that young people are in a good position to take advantage of.
“A Roth account is hands down the best choice for young adults. With a Roth you contribute dollars that have already been taxed, and then in retirement you get to withdraw the money without paying a penny in tax,” Orman said. “When you are just starting out and likely in a low-income tax bracket, the Roth is the way to go.”
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