There is a shift in the American Dream among the younger generations (Gen X & Millennials). The previous notions of finding a company job out of college or high school, working there 40 years, buying a home with a 2 car garage and white picket fence, then retiring at 60 with a nice pension and a gold watch are not common realities today. Even with a change in lifestyle goals, there are some sound financial points to consider to ensure a strong financial footing.

Ever-changing Corporate Landscape

Just look at the past few decades in Rochester and we see Kodak bankruptcy, Bausch & Lomb buyout, and a possible divesture at Xerox. Perhaps the biggest issue I hear about is the uncertainty around employment. Today it is very common for the next generation to work several part-time jobs or be a freelancer. This new work schedule creates a variability around hours and income; therefore, it is advisable to first focus on building and maintaining a reserve fund of cash.

Preparing for the Unexpected

Building the cash reserve allows for a “relief valve” when the car breaks down and hours get trimmed one month, or perhaps you have higher than normal medical visits and you are on a high-deductible plan. As a guideline we recommend you save 3-6 months of expenses, which is a lot, but will ensure you can weather some uncertainties.

Start by carving out money each month into a savings account, or separate savings account, so it isn’t comingled with the day-to-day monies. It may take a year or two to build the reserve, but it is essential to build up and continue to maintain as withdrawals are taken for emergency needs.

Making Retirement a Reality

Retirement is also something that everyone wants to believe they will make happen someday, but it won’t happen unless you can save for it. It is unlikely a pension from a company will be available, and Social Security will not cover all retirement expenses. It’s prudent to save at least 3-5% of your income to place into a retirement account today to start, no arguments. Guidance from a CERTIFIED FINANCIAL PLANNER^TM (CFP®) can help you decide which retirement vehicle to use since there are a lot of choices. Each year thereafter, increase the percentage you are saving until you are maxing out your allowable contributions. It may take 20 years to max out your contributions, but it will be worth the hard work when you get to retirement age and realize you can actually retire. I have yet to meet a retiree who said, “I really wish I had less money saved for retirement.”

Affording a Home

Once the cash reserve and retirement savings are handled, hopefully there is a little left over to start considering other big purchases like a house. Buying a house isn’t for everyone, but given today’s interest rates and high rental rates it makes a lot of financial sense. If you are fairly confident that you will be located in one area for 10 years or longer, buying a house would be a cost effective housing solution.

Eliminating Student Loans

I don’t think a discussion about the next generation can be complete without something on student loans. Unfortunately, there is no “magic bullet” with paying off student loans. Some options to consider would be to spread the payments out a number of years through a consolidation, while focusing on keeping the interest as low as possible. It’s best to get the payments manageable and just keep chipping away until they are gone.

Starting the Conversation!

I hope these few points help start a conversation with your spouse, your parents, your friends, or your kids on steps to gaining a firm financial foundation. The framework for the next generation has changed and the advice we offer has changed slightly as well. However, every generation has a common goal to live comfortably, have some fun, retire someday, and leave the world better for the next generation.

If you have any questions, contact Adam today at 585-419-0670 ext. 50682.