Personal finance is difficult no matter what stage of life you are at. But for Zoomers just entering the workforce, the challenges are met with much uncertainty. And it’s this combination that brings us Carolina with her questions in this week’s episode explain meVisit Vox’s hotline for all your questions.
Carolina is fresh out of college and already stressing about retirement. The older people in his life give him the same advice that generations before him received: start saving immediately, contribute to your 401(k), and don’t touch it for decades until you’re ready to stop working.
It’s sound advice, but Karolina wonders if it applies to her and the rest of her. He knows the havoc the Great Depression wreaked on everyday people and the economy. “I think people assume the stock market is always safe,” he says. “But it keeps crashing.” It’s understandable why someone might be hesitant to put their trust in a financial system that has been in a scare as recently as this summer.
To answer this question, we listed Vivian Tu, aka your rich BFF. Vivian is a former Wall Street Daytrader and currently hosts Net worth and chill (explain me And Net worth and chill Both are part of the Vox Media Podcast Network).
Can you enjoy today while preparing for the future? “You’ve got people who say ‘I’m going to blow all my cash today. I’m going to go shopping, because who knows if I’ll retire in a few years.’” Tu says. “Then there are people on the opposite side of the spectrum who say, ‘I have to prepare. All I have to think about is retirement…I’ll live the worst life I can today so I can have a better future.’
We sat down with Tu to discuss how to plan for the future while enjoying the now, how to protect yourself from financial uncertainty and how the younger generation can adapt to the changing financial landscape.
Below is a portion of our conversation, edited for length and clarity.
you can listen explain me on Apple Podcasts, Spotifyor Wherever you find podcasts. If you would like to submit a question, send an email to askvox@vox.com or call 1-800-618-8545.
How should we think about balancing living in the present and preparing for the future?
I tell people to find the middle of that barbell. You are allowed to enjoy your life today. I promise you, you will not be put on this big green earth to work a 9 to 5 job to hate your life. This is not your ultimate goal. You are allowed to have little treats. You are allowed to take that trip. You’re allowed to go and grab a manicure with a friend because it’s fun.
You don’t want to have so much fun today at the expense of the future. You want to be able to have fun today and tomorrow.
Practically, what tips do you have for people thinking about retirement?
As I always tell everyone, your Rich BFF has a special method: you have 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 set aside an emergency fund. In particular, I recommend keeping your emergency fund in one High Yield Savings Account So that your money is already earning interest waiting for that rainy day. If you’re a singleton, 3 to 6 months of living expenses is a good bet. If you are the head of the household, you have dependents, I would say around 6 to 12.
T is total debt. Many of us have debt – that’s not a bad word. It’s just a tool. What I say is the rank from highest to lowest interest rate. Make minimum payments across the board to keep your credit score high. But then the extra funds you have to repay the loan go towards the highest interest rate.
Next R: Retirement. Take advantage of tax-advantaged accounts through your work. You can open an IRA or a Roth IRA.
And then I. This is important; Just opening these accounts is not enough, you have to actually invest. Take the cash you keep in those accounts and make meaningful investments based on your risk profile. Target date retirement funds or Index funds Often understood
And the last step is so critically important: P – Planning.
You can’t live happily ever after, you can’t ride off into the sunset if you don’t have a plan. Write down what your goals are, what those milestones are, what you want to achieve, how much money you need to get there, and then what you need to do to get there.
How do you protect yourself and those investments from another financial crisis?
It’s really important that your portfolio reflects how far you are from retirement.
So when you’re 20, yes, you can be 100% or 90% in the stock market and 0% or 10% in bonds. By the time you’re 50, it should almost reverse.
But it really depends on how much you’re making and how much you already have. Every person is a little different.
What about people who just get by? How should they prioritize retirement savings?
If they’ve just got it, first and foremost we want to try and maximize that income. People always recoil when I say this: You need to ask for a 10 to 15% raise every single year.
Whoops
I’m not saying you’re getting it but if you want 10 to 15 and you get eight, that’s good, because eight will keep you above the inflation rate.
Retirement and savings in general are often presented as these sacrifices. You’re going without your fancy groceries now so that in the future you can go on cruises and golf and do whatever people do in retirement.
JQ is going to retire to Naples!
But how do you find that balance? How do you prioritize these things?
I think it’s about giving yourself a life that you’re happy with today and also thinking, “Hey, it’s not like saving for retirement means this money goes down a black hole.” You still get to spend it right after.
You’re not just putting this money aside and then getting that same number back in retirement. When you start investing your money, when it has some room and time to grow, that money really works hard for you. And so you can keep $100,000. That $100,000 could turn into millions of dollars in retirement.
