The classic image of young adults scraping by on instant noodles and sharing living spaces is a cliché because it’s rooted in truth: it has always been tough to stretch an entry-level salary to cover rent, utilities, groceries, and other essentials. But as the oldest members of Gen Z enter their mid-20s, experts say they face higher costs and fewer resources than previous generations.
High rents and student loan debts are major hurdles for new college graduates. “Both of those take a big bite out of anyone’s budget,” says Ross Mayfield, an investment strategy analyst at financial services firm Baird. “Every generation has its own challenges, but these are two significant burdens for young investors.”
Although getting out of debt, saving money, and building wealth are challenging, they are not impossible for Gen Z. Financial experts say it requires a strategic approach. “The key is to think about your strategy as a whole, rather than in parts,” says Anthony H. Williams, founder of wealth-management firm Vivid Advisory.
Here are the top five pieces of advice from experts for young adults:
Build an Emergency Fund
Building an emergency fund should be the first financial goal for young adults. With average credit card interest rates over 21%, even a small setback like a car repair can become a big financial problem.
“The first focus should be on a small emergency fund,” says Steve Matejka, chief operating officer of Valley Strong Credit Union. Aiming for $1,000 is a realistic goal for young adults on tight budgets and can cover most common emergencies. Long-term, aim to save enough to cover two to three months of living expenses in case of job loss.
Use Buy-Now-Pay-Later Services Sparingly
Despite their popularity, experts advise caution with buy-now-pay-later (BNPL) services like Affirm and Afterpay. Using BNPL for everyday purchases can quickly add up and drain your budget.
“BNPL tends to lead to more BNPL,” says credit expert John Ulzheimer. It can become a hard habit to break and managing multiple accounts can be a hassle. Additionally, most BNPL companies don’t report your payments to credit bureaus, so they don’t help build your credit history.
Build Credit Responsibly
Many Gen Z members, possibly seeing their parents struggle with credit card debt, avoid credit cards entirely.
“Credit avoidance is a problem,” says Ulzheimer. Avoiding credit cards can prevent you from building a positive credit history, which lenders need to see to offer you the best rates on loans and mortgages. While it’s good to avoid problematic debt, not having any credit cards due to fear is an overreaction.
Take Advantage of Employer 401(k) Matches
If your employer offers matching 401(k) contributions, take advantage of it. “At the bare minimum, take the match,” Williams says.
Starting to invest early allows decades of compounding to grow your money over your career. “Investing is a long-term game, and missing out on compound interest is a big loss,” Williams says. If you’re new to investing, start with index funds, which generally outperform other investment strategies over time, according to Matejka.
Consider a Roth IRA or 401(k)
Early-career retirement savers benefit most from Roth IRAs and 401(k)s, which are funded with after-tax contributions. If your job offers a Roth 401(k) or if you’re eligible for a Roth IRA (income under $161,000 for single filers in 2024), contributing to one provides two advantages.
While you pay income tax on Roth contributions now, you’re likely in a lower tax bracket than you will be in the future. The money grows tax-free, and qualified withdrawals in retirement aren’t taxed either.
