Each era of adulthood requires a different approach to investing. For example, financial planning that works for adults in their 50s won't work as well for 30-year-olds. Young people in their 20s are a completely different era than 50-year-olds or even 30-year-olds. People in their 20s are normally beginning the pathway to their financial foothold. The three tenets of financial freedom that they should be focusing on are : finding a lucrative job, maintaining a budget and saving money.Financial success is a decades-long journey with unpredictable twists and turns. Even after graduating from college, young adults in their 20s underestimate the importance of pursuing a lucrative career. Building wealth at age 25 doesn't begin with investing in stocks or mutual funds, it starts with financial discipline and a well-paid job.
Finding a lucrative job
Finding a lucrative job is arguably the most crucial step to financial success because it leads to financial flexibility. A career's lifetime income potential matters when planning for retirement. Without the right career, budgeting and saving will have a limited impact on wealth generation.The Bureau of Labor Statistics publishes facts on
job growth and median salariesand being able to distinguish between a median and an average is critical. They aren't interchangeable numbers, and it's a common mistake young people make when deciding to pursue one career over another.Median incomes reported by The Bureau of Labor Statistics are the middle figure between the highest earners and the lowest earners for that particular field. A median is more useful than an average when finding a job because averages slant statistics if there is a wide range of figures.The challenge for young people is generating an income above the median salary in a particular field. Not surprisingly, the medical industry, finance and technology continue to rank among the most lucrative career paths, according to the incomes reported.Specialization gives recent college graduates a way to find a niche in a competitive field, such as health care. Many pursue careers in the medical field, but which specialists earn most over a lifetime? As of 2017, median annual pay for an anesthesiologist is greater than or equal to $208,000 per year. During the same period, pediatricians earned a median income of $172,650 annually.The difference in income between medical field specializations shows why finding the right job matters most to adults in their 20s. Personal fulfillment and career earnings don't have to be mutually exclusive. There are opportunities to earn more money if college students rethink what they want to do after graduation. For example, The Bureau of Labor Statistics expects nurse practitioners to rank among the
fastest growing occupations by 2026, which medical students may not realize until after graduation.Related:
Five Steps to Change the Habits that Are Sabotaging Your CareerRelated:
Career Transformation Starts With Four Switch-Points of Change Budgeting
The fundamentals of budgeting for retirement, only spending what is necessary and reducing living expenses, haven't changed. What has changed is how much young people can benefit from starting right now. For most young adults, budgeting and paying down student loan debts are two sides of the same coin.Currently, the total amount of
student loan debtin the U.S. - $1.52 trillion - is higher than the total amount of credit card debt, or mortgage debt.Young adults in their 20s have to account for paying student debt as they budget for the long haul. Maintaining a budget provides better opportunities to invest later in life.If young adults begin minimizing their living expenses now, they will have more financial flexibility in their 30s and beyond. Each decade of life brings new economic challenges, such as paying off a mortgage or sending kids to college, so having the discipline to control expenses will pay huge dividends over time.
Savings
A smart savings strategy
takes advantage of compounding interest. Simple interest only relates to the original investment principal, but compounding interest includes interest from other time periods, not just the initial one. Some financial planners describe compounding interest as "interest on interest."The most significant benefit of compound interest is that savings accrue faster if one starts investing sooner. Without a high income, young adults won't be able to start in their 20s, hindering their lifetime earnings by not taking full advantage of compounding interest.In "
Decades & Decisions: Financial Planning at Any Age," it explains why 20-year-olds need to find a high-paying job. During early adulthood, it's not a matter of how to invest, but rather how to start. Income potential is the most important asset for people in their 20s.The path to financial freedom diverges as people grow older and change priorities. Strategies that work well during one era of life won't work later on. The most successful people begin accumulating wealth by first finding a lucrative career.Joseph Conroy, CFP® is a financial advisor at
Synergy Financial Groupin Towson and the author of “
Decades & Decisions: Financial Planning At Any Age.” Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered though SFG Wealth Management, a registered investment advisor.SFG Wealth Management and Synergy Financial Group are separate entities from LPL Financial. The opinions voiced in this material are for general information only and are not intendedto provide specific advice or recommendations for any individual.
