As an attorney, you are already familiar with how important it is to have a plan and goals that you work toward. Your wealth should be one of your primary focuses.
Begin to envision the kind of life you want in five years, ten years, and further into the future. You’ll have a starting point to put those dreams into actionable steps that will bring you closer to your financial ambitions. When you’re ready to get started, call the legal financial planning experts at Power Forward Group. Call (646) 647-2150 now.
Put Down That PBR; Your Future Is Waiting
Maybe you’ve heard that tired phrase, “there is no time like the present” but it’s only tired because it never stopped being true. Deferring your dreams every day eventually leads to a loss of time and money.
Which is why another cliche is also true - time really is money - especially when it comes to investments that compound over time.
If you still aren’t convinced that the time is now, here are a few honest reasons that you should begin building wealth now.
Wealth Builds Over Time
The first reason you need to start building wealth in your 20s is because it gives you more time to compound and grow your assets.
The longer you contribute to your investments, the more you will accrue and the wealthier you will become.
More Time for Higher Risk Investments
When you are young, you can absorb high-risk investments better. Sometimes, risky investments come with larger payouts.
You should always speak to a financial advisor before making risky investments because you should have a diversified portfolio first.
In your 20s, you have more time to make up for small losses and regain and keep growing your portfolio. It is tougher to recover from setbacks like this when you are closer to retirement.
Creates Rich-Thinking Habits
Building wealth in your 20s also forces your mind to create a new way of looking at money and spending habits. When you are intentional with your money, you’ll also set good habits for the rest of your life.
Instead of looking at money as something fun to spend, you’ll see it as something that can work for you to give you the lifestyle you want.
The sooner you establish habits that cause you to think rich, the longer you’ll have to actually become even wealthier.
Avoids Spontaneous Bad Decisions
On the flip side, when you are making good decisions, you are also less likely to make a bunch of bad ones.
In fact, when you pay yourself first and save for the future, you will be forced to think more about each expenditure. This one habit will prevent you from making impulsive decisions that could cost you precious money.
How to Build Wealth in Your 20s
Your 20s are some of the most valuable years of your life for wealth-building. As an attorney, there are four simple ways to become wealthier without having to work more hours.
1. Boost Retirement Contributions
One of the easiest ways to build wealth is to contribute the maximum amount to your 401(k). These deposits can be automatically deducted from your paycheck so that you don’t even miss the money.
Plus, when you pay yourself first, you’ll be putting your wealth as the top priority and forced to think carefully about frivolous purchases.
Keep yourself informed about the maximum contributions for each year and try to meet them. For 2022, employees can contribute up to $20,500 per year.
Speak with a financial advisor to determine how often the interest in your 401(k) will compound. If it compounds annually, then that means it will earn interest on the deposited amount and the interest you already earned the year before.
If you don’t think you can afford to reach the maximum contribution limits, start small. Increase retirement contributions by 1% each year - eventually, you will reach the maximum limits.
No matter which kind of investments you have, the longer you contribute the maximum amounts, the more money you will have at retirement.
2. Invest With Logic, Not Emotion
It is important to make sound financial decisions when you are in the early stages of building your wealth. If you invest with emotion, you will be more likely to react with fear if the market dips or purchase unwise investments when things feel limitless.
One of the best ways to avoid reacting emotionally to the dips and pulls of the stock market is to create a plan with a professional financial advisor and stick to it. Logic will carry you through some of the more unknown or volatile economic experiences.
3. Set Aside Half of Your Pay Raises
Another fantastic way to build wealth when you are young is to learn how to depend and live on your current income. As you earn pay raises, set aside half of it for retirement.
This small action will allow you to enjoy the increased income but also save for your future.
Use this strategy with other unexpected sources of income, such as tax refunds and workplace bonuses. Get into the habit of giving half of this new income to savings and half to yourself now.
You won’t feel like you are missing out on the fruits of your labor, but you will be able to enjoy it in the future, too.
4. Pay Down Debt
Keep the money you earned instead of paying high interest on your debts. There are two ways to pay off your debt - the snowball method and the avalanche method. Choose the method that appeals to you most.
With the snowball method, you pay off the smallest debt first, then use the amount you paid to the small debt to pay off the next-larger debt. Keep repeating this pattern until your debts are paid off.
The avalanche method is similar. Instead of paying the debt with the lowest amount, you pay off the debt with the highest interest rate.
No matter which way you do it, it’s important to create a plan and stick to it so that you have more money to add to your retirement savings.
When you pay down your debt, your minimum monthly payments will decrease and you’ll have more money to put towards savings and retirement.
Helping Young Lawyers Build Wealth and Save
Start building your wealth today. Contact Power Forward Group about financial planning for attorneys at 646-647-2150.
Our experienced advisors will look at your current portfolio and financial habits and give you an action plan that will help you meet your financial goals.