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In a country where roughly one in four adults have less than $1,000 in savings, reaching six figures in savings is an amazing milestone, whether you’re 18 or 80 – but your next steps should be based at least in part on your age.
For Millennials, it can be an especially pivotal time. Definitions vary, but if you are between the ages of 27 and 42, you’re in the ballpark. No longer in your early twenties, perhaps well into your professional career, you are at the point where the decisions you make right now will, in all likelihood, define your future.
Here are five important steps experts recommend that Millennials take once their savings have crossed the $100,000 threshold.
Top Off Your Emergency Fund
Life comes at you fast, and nothing makes you more secure than having enough cash on hand to handle an emergency. Keeping some of your savings in a safe and easily accessible place, like a savings or money market account, means you’ll be ready for anything the world throws at you.
“This should be your first priority. An emergency fund is money that you set aside to cover unexpected expenses, such as a job loss, medical emergency, or car repair. It is important to have at least three to six months’ worth of living expenses saved in your emergency fund,” said Blake Whitten, financial advisor at Whitten Retirement Solutions.
Pay Off High-Interest Debt
Not all debt is created equal. There’s good debt and bad debt.
Generally speaking, good debt is a loan used to finance the purchase of something that offers you a good return on investment — or at least the chance for one. Bad debt is the sort of loan that doesn’t offer a good return. This is usually something like a payday loan or credit card debt but could also include an auto loan or even student debt, depending on the terms and your ability to pay off the principal.
“Pay off high-interest debt. If you have any debt, such as credit card debt or student loan debt, focus on paying it off as quickly as possible. This will free up more money for you to save and invest,” said Whitten.
Redefine Your Financial Goals
It’s entirely likely that you’ve been concentrating on saving without any clear goal for the future. A major milestone is a great opportunity to take stock of your goals and put some of that money towards your top priorities. Maybe you’ve been dreaming of buying a house or condo, or leaving your day job to pursue that million-dollar idea of yours, or even spreading the wealth – you don’t have to be a billionaire to start giving back.
“If you are ready to buy a home, $100,000 is a good down payment… If you have a great business idea, $100,000 can be a good start-up fund… [or] you can use your savings to make a difference in your community. This could include donating to charity, volunteering your time, or starting your own foundation,” Whitten continued.
Diversify Your Portfolio for the Long-Term
Once you have a clear vision of your goals for the future, it’s probably time to start diversifying your portfolio. Depending on where you’ve been putting your savings, you could be exposing yourself to undue risk – either by achieving low returns, or by being too concentrated in a single asset class.
With a strong savings foundation, consider diversifying into various asset classes such as stocks, bonds, and maybe even real estate. This approach not only lowers risk but also offers potential growth avenues,” said Taylor Kovar, Certified Financial Planner and CEO of The Money Couple.
For example, if your $100,000 is kept in a traditional savings account, you are probably getting a very low interest rate. Moving some of it into the stock market could dramatically increase your long-term returns.
Or maybe you’ve been getting stock options, and most of your savings are in the stock of the company you work for. Moving some of it into lower-risk investment vehicles like bonds will immediately lower the risk of your total portfolio.
Consult a Financial Advisor
Don’t know where to start? Feeling overwhelmed? You’re not alone. There’s a reason financial advisors exist. Don’t be afraid to reach out for help from a professional.
“They are certified experts and can provide you with personalized advice and guidance to achieve your unique financial goals. They can also help you prepare for the unexpected and provide you with access to educational tools and resources to help you make more confident decisions about managing your money and future investments. Lean into their expertise and do not be afraid to ask questions. They are there to help,” said Kowsky Georges, Region Executive in Consumer Investments at Bank of America.
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