I’m a Financial Expert: 4 Gen Z Money Habits That Help Build Lasting Wealth
With costs continuing to rise on many everyday items, it can feel like an uphill battle to get ahead financially. This is even truer for Gen Zers who are just starting out in the workforce.
Luckily, we spoke with a couple of financial experts, and they shared some things you can do to make sure you’re building lasting wealth starting today.
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Automate Savings Prior to Making Any Unnecessary Purchases
One of the most important things you can do as a Gen Zer is to adopt the pay-yourself-first mentality. By automatically paying yourself first each month, you will avoid letting other priorities get in the way of your future financial success.
Start by setting up your direct deposit so a portion of your paycheck goes into savings and the rest into your checking account. You can also set up recurring deposits into your retirement account on payday. Doing these things will mean you’ll never see the money coming in, which makes it difficult to miss.
“What's very promising about the current situation in the Gen Z community is that more of them save than previous generations, approximately two-thirds of them set aside money regularly, which is a significant increase compared to just a couple of years ago,” said Cody Schuiteboer, President and CEO of Best Interest Financial. “But those who earn most and save most don't necessarily become wealthy. Those who automate their savings do.”
Resisting Lifestyle Inflation as Income Grows
Lifestyle inflation can be tempting as a young adult. You receive that first promotion and pay raise, and it can make you want to treat yourself.
However, it’s important to remember that most rich people don’t drive brand-new, expensive cars. They drive older, paid-off cars. They don’t go out and splurge on expensive luxury items. Instead, they increase their savings and investments to help their long-term wealth potential grow.
“Gen Z can potentially benefit from resisting lifestyle inflation as income grows,” said Daniel Gleich, board member and shareholder at Madison Trust Company. “Increasing savings and investing rates alongside raises, rather than increasing spending, can help strengthen long-term financial security.”
Start Investing in the Early Twenties to Capitalize on Time
There are endless ways for younger individuals to start investing, from employer 401(k) plans to robo-advisors that handle all the work for you. There is no reason not to start investing as soon as possible to take advantage of time and the power of compound interest.
“Time provides the most significant upside among all other possibilities for wealth creation while requiring a relatively easy effort,” Schuiteboer said. “If one begins to invest just $200 per month in the securities at the average 7% interest rate when they turn 22, they'll get close to half a million dollars after 40 years, whereas waiting for another decade to start would result in the accumulation of approximately $245,000 even with the contribution of about $24,000 extra.”
Protect Their Credit History as a Gateway Asset
Building good credit is extremely important for young Gen Zers. The problem is that many Gen Zers prefer to avoid credit because of its downsides. However, good credit can help you secure lower mortgage interest rates, lower auto loan costs, access better credit card rewards, and improve your approval odds for apartments.
It’s important to use credit responsibly. This means paying your bill in full and on time each month and avoiding unnecessary debt that can have long-term consequences.
“Many members of Gen Z prefer to use Buy Now, Pay Later' services instead of credit cards to avoid debt,” said Schuiteboer. “Yet BNPL companies don't build one's credit history as effectively as banks do. Therefore, it's crucial to build credit early in life and to treat BNPLs with caution.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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