As of the first quarter of 2015, according to the Pew Research Center, millennials are now the largest generation in the U.S. labor force. With the explosion of “FinTech,” Kirkpatrick points out that millennials have a variety of portfolio creation and asset allocation tools at their disposal. However, he warns that many of these tools oversimplify the investment process, using cookie-cutter allocations base don age and risk tolerance.
In the end, Kirkpatrick rightly states that developing a financial plan is the key to a meeting your financial goals.
Whether you use a professional advisor or do the planning yourself, Kirkpatrick suggests a few things millennials should be doing right now as part of their retirement planning:
- Know where your money is: Use an account aggregator that collects all your financial accounts in a single location.
- Know where your money is going: Using online budgeting tools or mobile apps to track your spending habits.
- Automate your financial life: Use your account aggregator or budgeting software to receive regular reports of your income, expenses and investments. Also, automate your retirement contributions to your IRA or Roth IRA.
- Protect yourself and your family: Make sure you have adequate levels of health, life and renters/property owners insurance.
- Set your financial goals using percentages, not dollars: Basing your savings on percentages instead of absolute dollars allows you to plan consistently even in your income changes.
- Review and monitor your plan: Kirkpatrick suggests that millennials think of themselves as corporations: “Your Name Inc.” Are you profitable? Would you buy your own stock?”.
AAII has a number of useful financial planning articles to help get you on the path to financial success. One article in particular comes to mind: Creating and Following a Real Financial Plan by Carl Richards.