The stock market’s volatility may alarm young adults who haven’t experienced this instability before. But the market’s ups and downs can offer young people an opening to build their retirement nest eggs at a discount.
“For young grads coming in, I actually think this sort of market volatility is an opportunity,” Jean Chatzky, personal finance expert and author of “How to Money,” recently told Yahoo Finance Live (video above).
“You're getting into your 401(k) at a time when prices have come way down. That allows you to buy some really good stocks on sale,” Chatzky said. “And, yes, prices may continue to go down. But if you're dollar-cost averaging into a new retirement plan, a 401(k), or an IRA, and you're buying every single time you get paid, you're going to get some bargains.”
Chatzky also said young people should track expenses through budgeting apps or even old-school pen and paper to save money. Budgets can help them see where their cash flow is going, especially if their wages aren’t keeping up with inflation that’s at 40-year highs.
“You need to know where your money is going. And that means knowing three things,” Chatzky said. “What is coming in, what is going out, and then very specifically what you're using your money for?”
She advises young adults who are starting to make a budget to be aware of all their expenses, no matter how small, for a month.
“That's not just your credit card spending. It's not even just your credit and debit card spending. It's your Venmo, and your Apple, your iTunes, and all of the different things that go into making up your monthly budget,” Chatzky said. “So if you've never paid attention, just start tracking. Do it for a solid month. And you'll have a much better idea.”
She also explained a formula that young adults can use to calculate their own inflation rate while they’re working on their budgets. Though the math seems complicated, Chatzky broke it down.
“It's just the difference in your spending in percentage terms month over month from a year ago,” Chatzky said. “You look at what you spent in April of this year. You look at what you spent in April of last year. You take the total for this year, and you subtract the total for last year. And then you divide it by the total for this year.”
Ella Vincent is the personal finance reporter for Yahoo Money. Follow her on Twitter @bookgirlchicago.