Justin Clark, CFP®,
Senior Wealth Manager
Many clients in their 20s and 30s are often focused on managing student loans, advancing their careers, and preparing for a family.
But this stage of life also presents a unique opportunity: the chance to lay the groundwork for long-term wealth. While earning a steady paycheck is important, true financial success comes from what you do beyond your salary.
The earlier you start building wealth, the more freedom and flexibility you’ll have to enjoy life later on. Here’s how to get started.
At a Glance: FAQ
Q: What are the benefits of tax-deferred savings accounts?
A: Contributions to tax-deferred accounts like traditional IRAs or 401(k)s can reduce your taxable income for the year; and you won’t owe taxes on your investment gains until you withdraw the funds.1
Q: Do I still need an estate plan if I’m young and single?
A: Yes! Even if you’re just starting out, if you own assets like a car, home, or savings account, it’s worth having a basic estate plan. It can help detail your wishes for emergency medical care, reduce potential taxes for your loved ones, and ensure your property goes to the right people.
Q: How do I diversify my investment portfolio?
A: Your financial advisor can help ensure your portfolio is well-diversified across asset classes like stocks, bonds, real estate, and commodities; across various sectors of the economy; and geographically, including international markets.
1. Build a Strong Financial Foundation
Before making significant investments, ensure your financial foundation is solid. Start by setting clear short- and long-term goals—like buying a home, launching a business, or planning for early retirement.
- Create a budget that reflects your priorities and helps you live below your means.
- Pay off high-interest debt, such as credit cards, as quickly as possible.
- Build an emergency fund with 3–6 months of expenses to protect yourself from unexpected costs or job loss.
Tip: It can be tempting to upgrade your lifestyle as your income grows, but practice “paying yourself first” or increasing your savings rate with each raise or bonus.
2. Start Investing Now
Time is on your side. Start investing early—even small amounts can grow into something big thanks to compound growth. Plus, when you’re younger, you’ve got more room to take smart risks and ride market fluctuations.
- Contribute to tax-advantaged retirement accounts, especially if your employer offers a 401(k) with matching contributions.
- Start with low-cost index funds or ETFs (which typically have minimal fees) and build a diversified mix of investments.
- Hold on to investments for more than one year before selling to take advantage of the lower long-term capital gains rate.2
Tip: By rebalancing your portfolio periodically, as certain assets overperform or underperform, you can help ensure your asset allocation remains on track with your goals.
3. Use Tax-Advantaged Accounts Wisely
Tax efficiency is a major—and often overlooked—part of building wealth. Reducing your tax burden means you can invest more of what you earn.
- Max out contributions to your tax-deferred 401(k), IRA, or HSA (if eligible).
- Depending on your current and anticipated modified adjusted gross income (MAGI), consider a Roth IRA, which allows your money to grow tax-free, and qualified withdrawals in retirement are also tax-free.3
- Use a 529 plan if you want to continue your education or save for a child’s college expenses.
Tip: Asset location is key to tax efficient growth. Working with your advisor can help you allocate growth-based assets or bonds between tax-advantaged or taxable accounts depending on cash flow needs and time horizons.
4. Diversify Your Income Streams
Your paycheck is just one source of income. Building additional streams can increase your financial stability during economic downturns and allow the flexibility to pivot careers.
- Tap into side hustles that play to your strengths, whether it’s designing, coding, consulting, or creating digital content.
- Invest in rental property or other real estate that has the potential to appreciate and provide steady monthly income.
- Make sure your portfolio is set up to earn passive income—like dividends or interest—as it grows.
Tip: Don’t forget to invest in yourself! Pursue professional development through courses, certifications, seminars, and mentoring.
5. Plan for the Unexpected
Insurance plays a vital role in building and preserving wealth by protecting you and your assets from unanticipated expenses and financial setbacks. While it may be tempting to delay coverage in your 20s, waiting often leads to higher premiums down the road.
- Invest in homeowners, renters, and auto insurance to safeguard your property.
- Purchase life insurance to support your loved ones if you pass away.
- Buy health insurance to cover medical expenses and disability insurance to replace lost income if you’re seriously ill or injured.
Tip: Estate planning helps you prepare for emergencies, protect what you’ve worked for, and ensure your assets are passed on according to your wishes.
We Can Help
Building wealth beyond your paycheck is a journey that requires intentionality, discipline, and a long-term mindset. It’s about turning income into opportunity, making smart financial decisions, and creating a legacy that lasts.
Reach out today to discuss how we can help you incorporate wealth-building strategies into a comprehensive financial plan.
Sources
1 https://www.bankrate.com/retirement/tax-deferred-what-does-it-mean/
2 https://www.irs.gov/taxtopics/tc409
3 https://www.irs.gov/retirement-plans/roth-comparison-chart
All content presented is for educational purposes only and should not be construed as a solicitation or offer to sell securities or provide investment, tax, or legal advice. All examples are hypothetical, for illustrative purposes only, and are merely arithmetic calculations. They are not representative of the performance of any type of investment, security, or strategy offered by the firm. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal. Hypothetical returns do not reflect actual trading and may not be indicative of the performance of any specific investment.
They are based on assumptions and estimates that may not be accurate or applicable to your individual situation. Always consult with a qualified financial advisor before making any investment decisions.
This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.
