Once you’ve reached your 20s and 30s, it’s likely that you have completed your education, become employed and taken on increased financial responsibilities. You’ve likely also made several financial missteps along the way, such as not saving enough, missing out on the returns that a sound investing strategy can provide, or simply focusing on your current financial situation rather than looking ahead.
Now is a smart time to begin thinking about how you can build wealth that will continue to grow throughout your lifetime and taking the appropriate action.
[See: 7 Investing Lessons Dad Forgot to teach You.]
Here are four ways to help create financial security both now and in the future.
Put at least 15 percent of your income toward retirement. Americans still aren’t saving enough for retirement, with a recent study finding that 19 percent aren’t saving any of their annual income at all, and only 16 percent are saving more than 15 percent.
Although retirement may seem far off, it makes an enormous difference if you start saving early, particularly as Americans are living longer and require a nest egg that will support them for longer. Consider putting away at least 15 percent of your income starting in your 20s so that it becomes simply a matter of habit, or what can be considered an automatic contribution toward the retirement lifestyle you desire.
If your company offers an employer match, take advantage of the opportunity and make sure you are contributing enough to receive the maximum match amount. If your employer doesn’t offer a retirement plan, you can save for retirement through other vehicles like an individual retirement account.
Buy life insurance once you have a spouse or children. If you get married and have children, that is the time to purchase a life insurance policy in order to protect the people who rely on you financially in the event of your death. Calculate how much you think your spouse and kids may need to cover expenses like child care and a mortgage as well as savings, both for retirement and education, and then select a policy that will cover them in case something happens to you.
[See: 11 Steps to Make a Million With Your 401(k).]
A fixed term life insurance policy of 20 or 30 years are your best options. Don’t get sucked into a variable policy or universal life policy that oftentimes have lock-up periods and high fees; like your investments, your insurance should be kept simple.
As is always the case with insurance, take the time to shop around and get multiple quotes to make sure you are getting a good deal.
Create a diversified portfolio focused on long-term investments. With geopolitical events, trade talks, and constant headlines out of Washington dominating the conversation, it is critical to maintain a focus on investing for the long term. Instead of reacting to short-term market events and making significant changes in your portfolio, stick to your plan so that you’ll be able to benefit from the potential rallies to follow.
In addition, focus on diversifying your portfolio rather than picking “hot” stocks or timing the market to attempt to mitigate any downside risk when the market drops. A properly diversified portfolio typically has a mix of assets with low correlation, such as value and growth stocks with varying market capitalizations (micro, small, mid and large), international and emerging market equities, fixed-income investments and liquid alternatives.
During your younger years, you may want to consider taking on more risk and then shifting to a more conservative asset allocation as you approach retirement.
Hold yourself accountable. Working with a financial advisor can help make sure you’re on track to build wealth and financial security in your younger years as well as throughout your lifetime.
[See: 7 Things That Can Derail Your Retirement Investing.]
A responsible advisor can help maintain the alignment of the level of risk in your portfolio and your financial goals, help guide you through decisions regarding insurance policies and other products, and identify the pros and cons of certain investments.
Creating wealth can take time and patience, so taking these steps early will help you build a strong financial future.
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4 Steps to Build Wealth in Your 20s and 30s originally appeared on usnews.com
