Suze Orman: 5 Things Every Gen Zer and Millennial Should Do To Achieve Financial Freedom
Gen Zers and millennials are at a point in their lives when they are likely making some major lifestyle and financial changes. This can include moving out on their own for the first time, starting a new job, getting married and buying their first home.
It’s also a time when they should be working to build savvy financial habits and behaviors that will set them on a path to financial freedom. In a recent blog post, Suze Orman shared the five things every young adult should be doing to achieve financial freedom. Here’s what she recommends.
1. Stay on Top of Student Loan Payments
With student loan repayments set to resume in October, some Gen Zers may be making payments for the first time, while some millennials will be making their first payments in years. While it may be difficult to fit these payments into your monthly budget, Orman said it’s necessary to stay on top of them.
“Loan servicers should be contacting their borrowers to make sure they know when and how much they need to start repaying, but I want every young adult to take the initiative to log in to their account and make sure they understand what’s expected of them,” Orman wrote in the blog post. “Falling behind on student loan repayments is a very hard hole to climb out of.”
2. Don’t Overspend on Necessities
There are certain expenses you can’t avoid, such as transportation and housing. But it is important to make smart choices to ensure that paying for these needs doesn’t put you in a bad financial position.
“One of the best ways to start building financial freedom is to spend the least amount possible on these needs — not the most you think you can afford, or the most a lender will let you borrow,” Orman wrote. “The goal should be to spend the least amount necessary to fill [the] need.”
This may mean opting for an older car or a less luxurious apartment.
“Sure, everyone wants a new car, but a less-expensive reliable used car is the far smarter move,” Orman wrote. “That will leave you more money for other goals. Same goes with a home. Don’t stretch into the too-expensive home; that often turns into a financial regret. Buy the home you can comfortably afford.”
3. Build Up an Emergency Fund
Having three to six months’ worth of expenses saved in an emergency fund can prevent you from future financial disaster.
“Being ready for one of life’s ‘what ifs’ is how you avoid expensive credit card debt,” Orman said. “Getting started with savings is the hardest part when you are young.”
To make things easier, set up automatic payments from your checking account into a separate savings account. Once that’s set, your emergency fund will continue to grow without any effort.
“That savings account can be wherever [you] do [your] checking, or an online bank that offers a higher yield on savings accounts,” Orman said.
4. Invest in Stocks for Long-Term Goals
Orman said you should not put any money into stocks that you will need in less than 10 years.
“Stocks are for long-term goals, not for savings you might need to cover an emergency bill,” she wrote. “My advice for people starting out is to stick to a low-cost index mutual fund or ETF that tracks a broad US benchmark.”
If you have a workplace retirement account, opt for a “total market” or “S&P 500 index” fund, she said.
“This is the easiest way to get instant diversification,” Orman said. “Investing in individual stocks can come later.”
5. Open a Roth Retirement Account
If you have access to a Roth account through your employer, be sure to take advantage of this opportunity. If not, open a Roth IRA through a brokerage.
“A Roth account is hands down the best choice for young adults,” Orman wrote. “With a Roth, you contribute dollars that have already been taxed, and then in retirement, you get to withdraw the money without paying a penny in tax. When you are just starting out and likely in a low income tax bracket, the Roth is the way to go.”
Orman notes that there is an income limit on who can save in a Roth IRA, but there is no income limit for a Roth 401(k).
“In 2023, an individual with a modified gross income below $138,000 and anyone married who filed a joint tax return with income below $213,000 can contribute up to $6,500 in a Roth IRA,” she said.