- Ryan Sterling, CFA, is a senior vice president and investment counselor at Capital Group, working with high-net-worth individuals and families with at least $5 million.
- Sterling also volunteers with the non-profit Cents Ability teaching financial literacy classes at the Bronx Youth Center.
- Getting an early start is critical to building wealth, he says, as early mistakes can set you back years or even decades.
- Whether you're a teenager learning about money for the first time or an adult with a history of financial mistakes, the time to take control of your finances is now.
For most teens, financial planning is a topic far from top of mind.
School, sports, and social activities take priority while managing credit, creating a budget, and saving for retirement feels like a long way off. That said, life hits you pretty fast and before you know it you go from being a carefree teen, to a young professional with student loan and credit card debt. Living paycheck to paycheck with no savings — or a plan to build savings — can very much feel like you're hanging on by thread. And, in many ways, you are.
This is the way the founders of the New York based non-profit Cents Ability, Alexa DuPont and John Moore, felt when they first entered adulthood. Even though they were college educated with good entry-level jobs, they felt paralyzed by bills. Dupont and Moore realized they had a huge knowledge gap when it came to managing their finances and building wealth.
As a result, they created Cents Ability to help teens achieve their goals through learning how to manage their finances. I partner with Cents Ability and use their curriculum when teaching my financial literacy class at the Bronx Youth Center and, while this advice is tailored to teens, it certainly applies to anyone with a desire to build and grow wealth.
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Set financial goals.
Like anything, the key to building wealth starts with a goal to build wealth. Sounds obvious, but when life happens, it's easy to lose focus as career and personal goals take precedent.
Whether your goal is to have $1 million saved by 40, buy a home, retire at 60 or start a business in 10 years, it all starts with a goal. Write your goals down and put it through the SMART framework (specific, measurable, achievable, realistic, and timely). By going through this exercise you will be absolutely clear about what you are working towards and you will be more inclined to hold yourself accountable.
Create and hold yourself accountable to a budget.
For building wealth, all plans start with a budget. Without a budget it becomes easy for expenses to get out of control and to lose track of where income is going.
A weekly exercise I personally go through is to write down all of my expenses so I know exactly where I'm spending my money. Mot importantly, within my budget, I keep a line item for savings. If you commit to saving a set amount each month as part of a budget, it will eventually lead to a routine and you'll be surprised with how quickly your savings account adds up.
My students are often surprised to hear that all of my high net worth clients have budgets and I respond by saying there is a good reason why they have achieved their level of wealth. Do what the wealthy do and know where your money is going.
Participate in your company's 401(k) plan and/or start an Individual Retirement Account (IRA).
A great — and easy — way to pay yourself first is to participate in your company's 401(k) plan. If you are able to meet all of your monthly expenses and contribute the maximum annual amount to your 401(k) ($18,500 in 2018) you certainly should.
I recognize, however, that this may be difficult to do when first starting out but at a minimum, I would advise contributing the amount that you company matches. Otherwise, you're missing out on free money!
In the event your company does not offer a 401(k) or you freelance, you should consider an Individual Retirement Account (IRA). Like the 401(k), you get the benefit of tax deferred growth and, depending on the type of IRA (Traditional vs. Roth), you may get a tax deduction. Speak with a financial advisor to figure out which type of retirement account is right for you. I have yet to come across a client that says "I regret contributing to my retirement accounts when I was younger." If anything, my clients regret not contributing more or starting sooner.
Retirement is expensive and your future self will thank you.
See the rest of the story at Business Insider
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