If your version of financial planning is keeping loose change in a jar and buying bottom-shelf booze, put on your big-kid britches and get your life together. It’s time to plan like a grown man. Here are the most essential steps of financial planning every man should take now to secure his long-term wealth and security.
When should a man begin his financial planning? Investment advisor Blair DuQuesnay (CFP, CFA) of Ritholtz Wealth Management says “as early as possible.” Preferably, when you get your first real job.
“Around 25 years old, time is on your side. And investing requires a lot of patience,” DuQuesnay tells The Manual. “The earlier you start investing the more you will experience the magic of compounding returns — when your returns start to earn returns, like free money.” By the time you’re 65 years old, these earnings will be substantial.
Max Out 401k Matching
The first step you can take (like, today) is looking into the 401k and retirement benefits you have through your employer. DuQuesnay suggests, at a minimum, to take advantage of your company match. In practice: “If your company will match 100 percent up to 4 percent, put at least 4 percent of your salary into a 401k. That way you’re maxing out the employer match.” That’s more free money, honey.
Slaughter High-Interest Debt
DuQuesnay says the next step men should take to make their finances ironclad is to pay off all high-interest-rate and consumer debt, such as credit cards and car payments, but not including student loans. This might not happen today, but that’s alright if you’re working toward it.
Budget for Living and Transportation (Not Avocado Toast)
“You can’t skip the avocado toast and build wealth,” DuQuesnay says. Instead, housing and transportation matter most when figuring out your budget, since they’re the biggest things we spend money on.
Once a reasonable budget is set for housing and transportation, “a man should pay himself first.” This means paying your savings account. Set up an automatic transfer either through your bank or employer that puts money into a savings account each pay period. This should be the first “bill” you pay every month.
How much money exactly? DuQuesnay says a minimum of 10 percent to 15 percent of your earnings. However, there’s no “magic number.”
Build Your Cash Reserve
By doing the above, you’ll already be halfway into the next step: building an emergency fund. In the event that the shit hits the fan; you’re fired, tragedy strikes, etc., your goal is to have three to six months of living expenses set aside in a cash reserve.
If a man has paid off all high-interest-rate debt, has a three- to six-month cash reserve, and is maxing out a 401k, “he’s ahead of 90 percent of his peers,” DuQuesnay says.
You Probably Don’t Need Annuity
If you’re the kind of guy who likes having a professional watch your back, seek a real, live investment adviser. This can be tricky to source since the majority of financial professionals that pop up on a Google search are varying degrees of sketchy.
DuQuesnay recommends not choosing a broker (aka a commission-based sales bro) and picking an investment adviser instead, who, like accountants and attorneys, are bound by a fiduciary standard to put their client’s interest above their own.
Young savers should also be wary of anyone trying to sell an annuity to them, and if you don’t have any dependents, you probably shouldn’t be sold life insurance.
You might be surprised to hear that DuQuesnay is all for young men trying free or low-cost robo-investing. Apps are also great. That’s awesome because only in the last decade has the democratization of investing advice become available for us to use. It takes elbow grease for a man to read financial blogs and use robo-advisors like Betterment, but it can work.
Positive Net Worth is Sexy
What’s the payoff? Well, it’s hard to see right now. “Our brains are hardwired to enjoy pleasure today, not understand the positive impact of saving 20 to 40 years in the future,” DuQuesnay says. But close your eyes and imagine this: peace of mind if you lose your job, early retirement, and freedom. “It’s sexy to have a positive net worth,” DuQuesnay laughs, “A lot of people don’t.”