Managing personal finances is difficult no matter what stage you are in life. But for zoomers just entering the workforce, the challenge also comes with a lot of uncertainty. And that combination is what led Karolina to ask us the question on this week's episode. Please explainYour go-to hotline for all your Vox questions.
Carolina just graduated from college, but she's already stressed about retirement. The elders in her life give her the same advice that generations before her have received. It's about starting saving now, contributing to your 401(k), and not touching your money for decades until you're ready to quit your job.
While this is sound advice, Karolina wonders if it applies to her and her peers. She knows the havoc the Great Recession wreaked on ordinary people and the economy as a whole. “I think people think the stock market is always safe,” she says. “But then the crashes keep coming.” It's no wonder some people are hesitant to put their trust in a financial system that was feared as recently as this summer.
To answer this question, we turned to Your Rich BFF, Vivian Tu. Vivian is a former Wall Street day trader and current host. network and chill (Please explain and network and chill Both are part of the Vox Media Podcast Network).
Can you enjoy today while preparing for the future? “Some people say, 'I'm going to spend all my cash today.' You never know how many years from now you'll be able to retire, so you can go shopping. ” says Tu. “And people on the other side of the spectrum say, ‘You need to prepare.’ All you have to do is think about retirement… You have to live your worst life today to have a better future.” Masu.”
We sat down with Tu to discuss how to plan for the future while enjoying the present, how to protect yourself from financial uncertainty, and how younger generations can adapt to changing economic conditions. .
Below are excerpts from the conversation, edited for length and clarity.
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How should we balance living in the present and preparing for the future?
I ask people to find the middle of that barbell. You are allowed to enjoy life today. I promise you, you weren't put on this big green earth to work a 9-to-5 job to hate your life. It's not your ultimate goal. Small rewards are allowed. You are allowed to join the trip. I'm allowed to go get a manicure with a friend because it's fun.
You don't want to enjoy today too much at the expense of your future self. I want to have fun today and tomorrow.
Specifically, what tips do you have for young people thinking about retirement?
I always tell everyone, your Rich BFF has a special way of being. That means you need to strip. Everyone says, “Oh, did I choose the wrong career?” No, strip is an abbreviation.
S stands for savings. First and foremost, you want to make sure you have an emergency fund. In particular, it's a good idea to keep your emergency fund in a high-yield savings account so you can earn interest while you wait for a rainy day. If you are single, a guideline is 3 to 6 months worth of living expenses. If you are the head of the household and have dependents, it's probably closer to 6 to 12 people.
T is the total debt. Many of us are in debt, and that's not a bad word. It's just a tool. What I mean is, rank the interest rates from highest to lowest. Keep all your payments to a minimum to keep your credit score high. However, if you have additional funds to pay off your debt, it will go toward the highest interest rate.
Next R: Retirement. Take advantage of tax-efficient accounts through your work. You can also open an IRA or Roth IRA.
Then me. This is important. It's not enough just to open an account, you need to actually invest. Take the cash you deposit into these accounts and make reasonable investments based on your risk profile. Target date retirement funds and index funds often make sense.
And the last step is very important. That's Plan P.
Without a plan, you won't be happy forever and you won't be able to ride off into the sunset. Write down what your goals are, what your milestones are, what you want to accomplish, how much money you need to get there, and reflect on what you need to do to get there.
How do you protect yourself and your investments from another financial crisis?
It is very important to understand your portfolio considering your distance to retirement.
So when you're 20 years old, you could have 100% or 90% in the stock market and 0% or 10% in bonds. When you turn 50, you should look almost turned upside down.
But it really depends on how much you earn and how much you already have. Each person is a little different.
What about people who are just trying to survive? How should you prioritize your retirement savings?
If they are getting by, we want to maximize that income first and foremost. People always flinch when I say this. You should ask for a 10-15% raise each year.
I'm not saying you understand it, but if you ask for 10 to 15 and get 8, that's good, because 8 still helps beat the inflation rate.
Retirement funds and savings are commonly presented as this sacrifice. You'll live without fancy groceries now, so in the future you'll be able to go on cruises and golf and do all the things people do in retirement.
JQ moves to Naples after retirement!
But how do you find that balance? How do you prioritize those things?
I think it's about providing yourself with a life you're satisfied with now, while thinking that “saving for retirement doesn't mean that money will disappear into a black hole.” You will use it later.
You don't just set aside this money and get the same amount back in retirement. When you start investing your money, if you give it some room and time to grow, it will start working harder for you. So you might put $100,000 into it. That $100,000 could turn into millions of dollars in retirement.
