With heavy financial burdens like student loans, rent, credit card payments and more, starting “adult life” on the right foot can feel impossible for many Millennials and Gen-Zers. These generations often receive conflicting advice about how to achieve financial stability: Some experts urge them to pay off their debts as quickly as possible, while others tell them to start building their retirement nest egg while they’re young.
While both paths are valid, it shouldn’t be one or the other. Instead, it’s important to create a strategic financial plan that addresses both short-term debt and long-term savings. Below, the experts of Forbes Finance Council share their advice for young professionals seeking a healthy balance.
1. Consider The Interest Rates
If your debt has an interest rate greater than 6% to 8%, then pay off the debt first, because the interest is too costly. If it’s less than that, put your money in retirement savings instead, because you can make an average of 6% to 8% investing in low-cost index funds. If your company offers a 401(k) match, you should prioritize contributing to your 401(k) to get the match because it’s “free money.” - Roger Lee, Human Interest
2. Use Today’s Financial Technology To Your Advantage
Planning to pay down debt and save for retirement needs to happen early on for the best results. Luckily, in today’s world, there are a ton of platforms like Acorns, Robinhood, Fundrise, etc. that allow you to take advantage of higher-yielding investments by making small incremental deposits, all while paying down debt. They also offer tools to help you understand how much to pay toward each. - Jared Weitz, United Capital Source Inc.
3. Track Every Financial Move
Simultaneously saving for retirement and paying down debt can be a difficult task. A good strategy is maintaining a balanced budget to stop debt from rising. Overspending and spreading your payments to several different debts can be eating away at your funds. Try consolidating your debts into one or two payments and get a better idea of where you stand so you can start putting money aside. - Greg Herlean, Horizon Trust
4. Be Consistent About Both, Even In Small Amounts
Much is stacked against today’s Millennials. However, there is an age-old financial strategy that can be used to guide them through their challenges—time. Fulfilling student debt obligations and retirement savings are seemingly impossible for today’s youth. Consistent savings and payments now, however small, will promote a sustainable path toward goal achievement and financial independence. - Brian Daniells, Signature Analytics
5. Work On Your Side Hustle For Extra Cash
In the tech-focused world we now live in, it is even easier to be making money while you sleep. Find something you are passionate about and can do on the side to help take the financial burden off your day job and saving for the future. - Khurram Chohan, Together CFO
6. Prioritize An Employer-Matched 401(k) Contribution
Take free money! When first starting to grow your net worth, accept your employer matches in the workplace retirement plan. Seriously, 3% to 5% of “free money” via a match is a great starting point. Then use your extra take-home pay to start reducing your debts. Starting is the hardest part! But once you do, it will become easier to visualize a financially secure future. - Justin Goodbread, Heritage Investors
7. Break Your Goals Into Smaller Milestones
Monitor spending on a micro-level with the help of a financial partner who can create a process to bolster household cash flow to tackle debts. Establish rules early. For example, aggressively pay down debts the first five years out of college. Invest in a company retirement plan up to the match, and direct 20% to 30% of take-home pay toward debt reduction and building an emergency cash reserve. - Richard Rosso, Clarity Financial LLC
8. Ask If Any Purchase Is More Valuable Than Paying Down Debt
You want to make sure that your current spending is winning the debt war. Be sure to ask yourself before each purchase, “Is this expense more valuable than paying down my debt?” If you don’t know where your money is going, you’re more inclined to say yes to those financial distractions. - Jeff Motske CFP®, Trilogy Financial
9. Commit To A 75/25 Split While You’re In Debt
If you are trying to find a balance, figure out how much you are willing to apply towards your debt and savings in total. Then, commit to the 75/25 effort: 75% of this monthly total settles your debt, and 25% goes toward your retirement or savings plan. Once you pay off your debt, apply 100% toward your savings. This approach will allow you the opportunity to balance both your initiatives. - Geanette Rodriguez-Ojeda, ARRI Rental
10. Save And Invest First
Make the effort to save and invest. Creating the habit early will be your greatest advantage, especially if you have a 401(k). Then it will be easier to turn your focus to chipping away at your debt while your savings compound in the background. Yes, your debt will compile, but if you put all your efforts to your debt you will not have a leg to stand on if something unexpected happens. - Faith Keith, Leverage Retirement
11. Be Patient And Stick To Conservative Spending Habits
Millennials and Gen-Z have a better way of accessing the important things in life than my generation ever did. They seem not to be impressed with expensive dinners and fancy cars. They plan, budget and live conservatively; I am actually very impressed by this. What is needed is patience and less worry. Over time your conservative and thoughtful way of living will bring financial security. - Perry D’Alessio, D’Alessio Tocci & Pell, LLP
