BOSTON (CBS) – Let’s start the week where most of us begin, being a newlywed couple.
And for this example I will assume our couple is under age 30 and both are working. This profile will work for a young couple who are living together as well and want a future together.
Key here is a future together so the first thing a couple does is figure out what they want in life. What are their dreams? Goals are dreams with a deadline! Dreams for most grown-ups have a financial component to them and so in order to achieve those dreams you need to plan your finances.
The most common goals when you are in your twenties:
- Pay off school debt
- Pay off credit card debt
- Have an emergency fund
- Buy a house
- Save for retirement
- Start a family
Paying off the debt is a no-brainer. The sooner your school debt is manageable the sooner you will qualify for a better mortgage rate. Don’t get caught up in only paying the minimum on your credit card debt. Be aggressive here. Consider this; if your card is charging you 18% interest by paying off the credit card you have, in essence, earned 18% on the money.
Start saving for an emergency fund. It’s not glamorous but you will be so glad you have a rainy day fund.
Buying a house. Here it is not so much investing but saving. For many young couples this is a short-term goal to save some dollars for the down payment. Use a savings account or a money market fund for the savings.
Saving for retirement. Even in your 20s, this should be your number one goal. If you are under 30 and start to save for retirement, you have over 35 years to save and invest to reach this goal. And the earlier you start the less money you actually need to contribute to be millionaires.
Here you both should be investing in the retirement plans at work and if your employer does not offer one consider using a Roth IRA. If you both contribute $2,000 annually to a retirement plan and we assume an 8% return you would each have $500,000, $1 million together. If you can contribute $3,000 each you could accumulate $1.5 million with the above scenario.
With a time horizon of over 30 years you can be more aggressive and you could actually consider a 100% stock portfolio for your retirement goals. This is a very aggressive strategy and may have you losing sleep especially in today’s market environment. Can’t stomach the volatility? Decrease the stock percentage by 30% and add a short-term bond mutual fund or a bond index fund.