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Hey, everyone, and welcome back. We're diving into something today that a lot of people kind of put off, but it's super important, especially if you're a young adult. We're talking about financial planning, and we've got this great article here from Davies Wealth Management. Oh, yeah.

They've got some good stuff. They really do, and they lay it all out in a way that's honestly not as scary as I thought it would be. It doesn't have to be. No.

No. So one of the things they emphasize right off the bat is setting smart financial goals. Okay. Have you heard of this before?

I have. Yeah. So for people who haven't, though, it's specific, measurable, achievable, relevant, and time-bound. So it's not just like, I want to buy a house.

I want to buy a house in five years, and I'm going to save this much every month. Exactly. So you've got an actual plan. A roadmap.

Yes. Okay. So once you've got your goals set, what's next? Well, I think that's where a lot of people kind of get tripped up, because it's time to make a budget.

I know nobody likes that word. But it's so important. It really is. It's the foundation for everything else.

Okay. So how do we make a budget that we'll actually stick to? Well, this article suggests the 5-0-30-20 rule. Okay.

I've heard of that. Have you? So basically, 50% of your income goes to your needs, like your rent and groceries, and then 30% goes to wants. Ooh.

Fun. Yeah. It's the fun stuff going out with friends, you know? Right.

That new phone or whatever it is that you want. Yeah. The things you don't need, but you really want. Exactly.

So that's 20%. That's for savings and paying off debt. Okay. 20%, though, especially when you're just starting out.

Especially when you're younger. Yeah. That feels like a lot. It does.

Yeah. So do you have any tips for … Well, one thing that really kind of hit me from this article is that only 44% of Americans could cover $1,000 emergency expense. Really?

Yeah. That's a lot lower than I thought. It's pretty scary when you think about it. Yeah.

If something breaks down- Right. … or you have some unexpected medical bill- You're in trouble. Yeah.

So that's where that 20% comes in. Exactly. That's where the emergency fund comes in. Okay.

So emergency fund. Yeah. That's like our- Your safety net. Safety net.

Okay. Exactly. So how much should we- So ideally, you want to aim for three to six months- Whoa. …

of living expenses. That's a lot. I know. But you don't have to get there all at once.

Okay. Start small. Like even $50 or $100 a month. Okay.

That makes me feel better. It all adds up- Yeah. … over time.

Okay. So we've got our emergency fund. Mm-hmm. But what about debt?

Yeah. That's a big one. Especially student loans. Oh, especially student loans.

Did you know that's student loan debt in the US? No. It's like $1.7 trillion. What?

It's crazy. That's a lot of money. It's a lot of money. Wow.

Okay. So how do we even begin to tackle that? Well, you got to be strategic about it. Okay.

You know, you want to prioritize the high interest debt- Uh-huh. … and look into different repayment options. There might be some programs out there that can help.

Okay. I'll tell you this. Another thing that's important is building good credit. Oh, yeah.

Definitely. And the article mentions that- Yeah. … you know, pay your bills on time.

Keep your credit utilization low. Mm-hmm. I actually didn't realize that the average FICO score in the US is like over 700. Oh, yeah.

It's 714. That's pretty good. That's an all-time high. So we should aim for that.

Yeah. Definitely. Okay. So just to recap what we've talked about.

Yeah. Setting SMART goals. Uh-huh. Creating a budget.

Yep. Creating a good foundation. Yeah. It feels like we've covered a lot.

Yeah. And you know what? We're just getting started. Oh, there's more?

Oh, yeah. Okay. So we've got a good foundation now. Right.

So now we can talk about- Now comes the fun part. Investing. Yeah. Okay.

So I'll admit- Uh-huh. … I used to think investing was like- Yeah. …

this big, scary thing. It can seem that way. But after reading this article- Yeah. …

it's like, oh. It's not that bad. It's not as bad as I thought. No.

Not at all. Okay. Okay. Have you heard that term before?

Oh, yeah. It's like the golden rule of investing. Okay. So what does it mean?

So you know how people say, don't put all your eggs in one basket? Oh, yeah. My grandma used to say that. Yeah.

Well, it's the same with investing. Okay. You don't want to put all your money into one single investment. Okay.

You want to spread it out. So like- Yeah. Like stocks, ponds- Uh-huh. Uh-huh.

… real estate. Maybe even some alternative investments. Okay.

So it's kind of like- It's all about managing risk. Creating a safety net for your investments. Exactly. So if one investment goes down- Right.

… you've got enters that hopefully- To balance it out. … a new investment.

Okay. So don't put all your eggs in one basket. Got it. Spread them out.

Spread them out. Diversify. Diversify. Okay.

Got it. So with diversification, we've got like- Yeah. … stocks and bonds you mentioned.

Yeah. Those are kind of like the- Okay. … the main ones.

So what's the difference? So stocks are like owning a tiny piece of a company. Okay. And they have the potential for higher returns.

Okay. But they can also be more volatile. So that means like- Yeah. They can go down more quickly.

Really? Okay. A little bit riskier. Yeah.

Okay. And the bonds are- Bonds are more like loans- Okay. … that you give to the government or a company.

Okay. They tend to be more stable. Okay. But they might not grow as much as stocks.

So it's that trade-off. Less risk growth. Yeah. All right.

But the good thing is, as a young adult, you have time on your side. Yeah. That's good. Yeah.

This article mentions that like the S&P 500- Okay. … which tracks like 500 of the biggest U.S. companies- Mm-hmm.

… and it's historically returned. Like how much- Yeah. Like 10% a year.

Oh. 10%? Before inflation. That's pretty good.

Yeah. Now, of course, past performance doesn't guarantee future results- Right. Of course. …

but it shows you the potential. Okay. So- Yeah. …

let's say I'm young. Mm-hmm. It's got time on my side. Right.

Where do I start? Well, a lot of people start with retirement accounts- Okay. … like 401ks and IRAs.

Okay. Retirement. I know it seems far off. It does.

But the sooner you start, the better. Yeah. The article really emphasized that. Yeah.

It's so important. It's all about compound interest. Oh, yeah. That magical thing.

It really is like magic. Okay. So can you explain it to me? Like- Okay.

So imagine you have a snowball- Mm-hmm. … and you're rolling it down a hill. Right.

It starts small, right? Yeah. But as it rolls- Mm-hmm. …

it picks up more and more snow. Okay. So it gets bigger and bigger. So it's like compound interest is kind of like that.

Your money's growing. Yeah. You're not just earning interest- Oh. …

on your initial investment. Right. You're earning interest on the interest you've already earned. Okay.

It's interest on interest. On interest. Okay. It's pretty powerful.

So how much are we talking about here? So let's say you're 25. Okay. And you start investing $100 a month- Okay.

… with an average return of 7%. Okay. By the time you're 65- Yeah.

… you could have over $280,000. Whoa. But if you wait until you're 35- Mm-hmm.

… and start investing that same amount- Yeah. … you'll only have about $125,000.

So basically- The difference. … starting 10 years earlier- Makes a huge difference. …

levels your savings. Yeah. Pretty much. Wow.

Okay. Yeah. So 401Ks, IRAs. Those are the big ones for retirement.

Okay. So 401K- That's usually through your employer. Okay. And sometimes they even match your contributions.

Really? Yeah. It's like free money. Oh.

I like free money. Who doesn't? Okay. And then IRAs.

IRAs, you can open on your own. Okay. And there's a Roth IRA, which is often good for young adults. So with a Roth IRA- Mm-hmm.

… you contribute after tax. Okay. And then IRAs, you can open on your own.

Okay. And then IRAs, you can open on your own. And then IRAs, you can contribute after tax dollars. Okay.

So you pay taxes on it now, but when you retire and take the money out- Yeah. … you don't have to pay taxes on the earnings. So it's like tax-free.

Tax-free and retirement. Nice. Yeah. So we've got retirement.

Uh-huh. But what about other goals? Oh, yeah. Like buying a house.

Right. Starting a business. Yeah. Traveling.

That's important. How do we plan for that? Well, it all goes back to those SMART goals. Oh, right.

Remember- Let me see how everything connects. It all ties together. The article says the median home price in the U.S. was like over $400,000.

What? $400,000? Yeah. In late 2023.

Wow. So we need to- You've got to save- Save. … for a down payment.

Okay. Which can seem like a lot. Yeah. But if you break it down into smaller steps, it's not so bad.

It's less scary. Exactly. All right. So we've covered a lot- We have.