An adviser’s advice to millennials

What would you say to your 25-year-old self?

Millennials have presented quite a challenge to wealth managers as they try to bring this crowd aboard.
In my experience, many of them have an inherent skepticism about financial professionals that comes from living through one of the worst financial crises in history. It takes a carefully crafted message to overcome that apprehension — one that specifically targets their individual needs and sparks the key synapse that incites action on developing a plan for achieving financial independence.
The decisions and habits developed by young professionals in their 20s and early 30s are arguably the most critical to accomplishing their financial goals in the long run. How they choose to act regarding investing for retirement and paying down debt have the most profound effect, as their benefits and detriments are amplified by decades of compounding.

When I speak with young clients and prospects, I try to put myself in their shoes. What would I want to hear at that age? What would I have done differently? If I could hop in the DeLorean and go back in time, here’s what I would tell my 25-year-old self.

FIND YOUR CALLING
Talk to someone in their 60s and ask how many times they’ve changed careers. Finding your true calling takes time and likely won’t happen right out of college. I’ve been in the financial services industry for 25 years, but finding my passion didn’t happen overnight. It wasn’t until I was in my 40s that I realized I wanted to be a financial adviser.
Finding your calling can’t be forced, so don’t stress over it. You can’t just flip a switch and figure out what career suits you best. Immerse yourself in the tasks that accentuate your skills and bring you joy. Over time, you’ll find the sweet spot, a career that strikes the perfect balance: one that thrives on your abilities and interests but also supports a financially independent lifestyle.

THINK ABOUT REACHING FINANCIAL INDEPENDENCE
Don’t think of retirement as the finish line. If your goal in life is reaching a level of wealth that allows you to quit working, you’re missing the point. If you’ve found your calling and your health permits you to continue to work, then why quit? You don’t need to stop what you’re doing just because you’ve reached the “normal retirement age.” I happen to be 65, an age society considers on the verge of retirement, but I have no plans to hang it up any time soon.
Instead, strive to reach financial independence: having enough personal wealth to sustain a comfortable lifestyle without having to work. It doesn’t matter how old you are, or how much you make. Financial independence means being able to generate enough wealth to cover your expenses without relying on income from your job.
BUDGET
Live within reason and develop a budget. Part of making financial independence attainable is setting limitations on your spending and accepting that you don’t need an excessive lifestyle to live a happy life.
It’s not the end of the world if you don’t meet your numbers every month; it’s important that you and your family develop and live with the awareness of what things cost. The very act of developing a budget (and regularly reviewing it) will give you a good understanding of what you are spending money on and where you can afford to cut back.
EMERGENCY FUND
Start an emergency fund. Most financial planners will recommend that you reserve between three and six months of your income in the bank. If you are self-employed, you likely will require more than six months of income. The idea here is liquidity; that is, immediate accessibility, not rate of return. It’s the money you can get your hands on by walking into a bank or visiting the ATM.
RETIREMENT SAVINGS
Participate in financial markets by taking advantage of your employer’s retirement plan: 401(k), 403(b), 457, etc. Maximize your employer match if there is one, otherwise you’re leaving the employer’s money in their pockets, not yours. The compounding you achieve by investing at a young age is incredibly important. The dollar you invest today is far more important than the dollar you invest 20 or even 10 years from today.
If your employer does not offer a plan, start your own IRA. Some enable you to invest as little as $50 per month. As your income grows, set aside a portion of each raise to put towards increasing the periodic investments.
If your income affords it, contribute to both traditional and Roth retirement accounts. The federal government could someday change the tax treatment of various retirement accounts. It’s smart to diversify into both traditional and Roth and adjust your contributions according to the current tax law.
REDUCE DEBT
Unfortunately, many millennials are burdened with enormous debt from student loans. Just as a dollar saved for retirement is amplified down the road, an extra dollar of debt paid off today makes a huge difference in what you don’t owe many years from now. The same is true for consumer debt, like credit cards. Try to live on less for a short time so that you can expand your lifestyle later. This delayed gratification also helps foster the mindset of financial independence.
BUY INSURANCE
It’s smart to buy more life insurance coverage when you’re young and it’s cheap. By purchasing insurance when you are young, you can lock in your best health classification for as long as you own the policy. Buy more than you think you will need. As you get older, you’ll want to make sure large items like a mortgage and children’s tuitions are covered. You’ll save in the long run if you lock in that coverage at a lower rate.
Buy disability insurance as well. Twenty years down the road, you likely won’t be the professional athlete you are today. The chances of becoming disabled are greater than dying throughout your working years.
HINDSIGHT IS 20/20
Hindsight is 20/20, of course, and if I’m honest, I’m not sure that my 25-year-old self would’ve taken all this advice to heart. At that age, the things that trigger many individuals to put these tactics into practice — like buying a house or having children — may still seem far off, and the concepts of disability and death farther still.
It’s our job as wealth managers to help millennials understand the importance of all these things. I try to start small and make it as easy for my millennial clients as possible by putting automatic processes into place. I also encourage them to speak to family members who are retired about the income sources that sustain them. Often when they do, they will quickly see that many of the old strategies, like employer-sponsored pensions, will no longer be available to them, making it more important than ever to get on the right path at an early age.