For Gen Z, it’s daunting to think about saving, investing and planning for retirement.
As young workers start their careers, the stock and bond markets have been in turmoil, with the S&P 500 headed for its worst annual performance since 2008. A recession is looming. Wages haven’t kept pace with inflation. Credit card debt and interest rates are rising. Housing costs have surged. And a massive retirement savings shortfall has gotten worse.
For Gen Z, the start of the new year is a good time to do a financial health checkup, advisors say. They recommend sketching out a road map that balances immediate money goals, while also keeping an eye on saving for retirement, even if its decades away.
Here are five things experts say young people should do to get their finances in order for 2023.
Personal Balance Sheet
These days, people are rarely looking at all of their income, investments and expenses in the same place, said Dustin Smith, a financial advisor at Wealth Enhancement Group. Before you can make any financial decisions, he said, you need to have a thorough and holistic understanding of where you stand. That involves carefully tabulating all your transactions, and paying special attention to things like interest rates and recurring subscriptions.
People should also factor in any major anticipated expenses, such as moving or a vacation, and build short-term savings plans accordingly, said Bill McManus, vice president and managing director of applied insights at Hartford Funds.
Emergency Savings
The rule of thumb for savings is to have three to six months’ worth of expenses set aside for emergencies, especially if you are worried about job stability in an economic downturn.
“If you’re employed, make sure your financial health is in order, like having a cash reserve built before you pay off debt,” said T.J. Williams, a financial planner at Wealth Enhancement Group. While it may seem counter-intuitive to save before paying off loans, not doing so could push you deeper into debt or force you to sell investments that could help in the long run, he added.
To make the most of any extra cash and shield that money from inflation, he recommends shopping around with various bank products like high-yield savings accounts and money market funds that are offering record-breaking returns. But keep in mind that some accounts may have penalties or withdrawal limits when making a decision about where to park your assets, Williams said.