When Jack Duffley was only 18, he started investing the few hundred dollars he was earning from a summer internship into a retirement account.
Now 24, Mr Duffley, who lives in Chicago, Illinois, says he began to learn about investing from a colleague in the company’s financial planning department, who spoke to his cohort of interns about how much money they would need to comfortably retire.
Today, he owns two properties – a condominium in Chicago and a home in Indianapolis – and intends to buy another property to add to his portfolio this summer. He also has invested a significant amount in gold and commodity-based stocks.
He allocates about 5 per cent of his portfolio towards speculative bets with high-risk rewards, such as cryptocurrencies. Mr Duffley also keeps some cash in an easily accessible account and has the ability to draw more from debt.
"My primary goal is to build passive income of $30,000 a year," Mr Duffley tells The National.
“Creating that layer of financial flexibility for myself and my family is a top priority. Thus, a large portion of my future income will continue to go into cash-flowing real estate.”
Numbering about 2.5 billion, people born between 1996 and 2016 – called Gen Zers or zoomers – will be the "most disruptive generation" ever in terms of spending power, Bank of America said in its Gen Z to the world: watch out, here we come report.
Their income is expected to rise five-fold from $7 trillion today to $33tn by 2030 as they enter the workplace, accounting for more than a quarter of global income, before surpassing the income of millennials by 2031, the bank said.
After graduating from law school in December, Mr Duffley has been working part-time as a law clerk writing blogs for law firms. He will start full-time as a property associate on June 1 after he is officially sworn in as an attorney.
“My first focus is real estate investing, followed by stocks. Both are with an emphasis on the long term. The majority of my portfolio is made up of proven assets providing consistent cash flow, such as stocks from strong businesses and real estate,” says Mr Duffley, whose wife is studying at university and earns a part-time income.
When she graduates in a year, the couple will be able to enjoy the power of dual incomes and pursue their financial goals together, he says.
Mr Duffley learnt more about investing primarily from books, podcasts and YouTube videos. He has also been running a YouTube channel over the past 18 months to document his investing journey and lessons learnt along the way.
In the first of our fortnightly series on financial management for different generations, we spoke to financial experts who listed their top tips on how Gen Z can manage their money wisely.
Pay yourself first
Zoomers need to understand their cash flow and work out a budget.
“When they are young, most people focus on what they are going to spend [holidays, social and entertainment] and then save some of what is left over, if any,” says James Spence, the Abu Dhabi-based vice president of financial adviser Globaleye.
“That is a sure way not to achieve a sound financial future. So, flip it around, work out exactly what you need to be saving to get to your goals, then make sure you pay yourself first. Save what you need to save for your future, pay your bills and after that, spend the rest.”
Set up an emergency fund
It is important for zoomers to create an emergency fund that covers at least three months of living expenses to help them overcome a worst-case financial scenario and prevent them from going into debt.
“A medical crisis or car breaking down can easily leave you in a vulnerable position. If the fund is unspent, you may eventually save enough for a deposit or that year abroad you wanted to do [while keeping that three-month buffer],” says Sophia Bhatti, partner at Hoxton Capital Management, a financial advisory in the UAE.
Despite interest rates being at record lows, Ms Bhatti says it is important to keep your emergency fund in a savings account for easy access.
Start saving early
Many people tend to put off savings to a later stage in life. However, they miss out on the effect of compound interest on their investment over time. Compound interest is the interest you earn on interest.
“Putting away $1,000 when you are 18 and leaving it for 40 years could give you four months’ worth of income when you retire,” says Mr Spence.
Although retirement may seem light years away for zoomers, the sooner they begin to save and invest, the more time their money has to grow, says Ms Bhatti.
Inflation is the biggest risk to a retirement fund, according to Aadil Kadri, vice-president of sales at insurance broker Continental Group. Investing early in a market-linked retirement product helps you accumulate inflation-adjusted returns, he says.
Zoomers should take advantage of their age and health to avail of high insurance cover at the lowest possible premium, says Mr Kadri.
“Life insurance and critical illness insurance come to your rescue financially in case of unforeseen circumstances,” he says.
Gen Z need to ask themselves some tough questions such as what if they fall sick or are involved in an accident and are unable to earn, says Mr Spence.
"If you prepare for the worst and have a plan, should it happen then you do not have to worry about the 'what ifs'," he says.
“You can protect your future income and lifestyle through insurance. Many people postpone the protection planning until they are between 35 and 40 years old or even until their 50s. The earlier you get your insurance, the cheaper it will be.”
Financial experts also recommend that they take out medical insurance to cover day-to-day medical needs and emergencies.
“Medical costs are increasing and it is always a wise decision to have health insurance either by way of employee benefits or buying it personally,” says Mr Kadri.
Create a financial calendar
Zoomers must identify one to three large financial goals they plan to achieve each year and then create micro-goals that will help them achieve this, says Ms Bhatti.
“Set a realistic time frame and try not to deviate. I would also make note of any [but not limited to] direct debits, insurance renewals and paydays in your financial calendar,” she says.
This will help with budgeting and planning for the future and also provide them with a useful resource that encourages financial independence, she says.
Don’t put all your eggs in one basket
Nobody knows what lies ahead and what is going to be the next trend in the markets, according to Mr Spence.
"So have a diversified portfolio that is global. Some places will do better than others, some industries will do better than others. What is popular today maybe obsolete tomorrow, so diversify across the planet," he tells The National.
Use comparison websites and online resources
As zoomers enter the workplace and become financially independent, their living costs will inevitably increase. They can make use of comparison websites to help manage their expenditures.
“Utility bills [electricity, gas and broadband], insurance [car, home and pet], phone contracts, interest rates, investment platforms and plane tickets are just some of things comparison sites can compare for you. A little bit of research will go a long way,” says Ms Bhatti.
She also recommends that young adults take advantage of an abundance of online financial planning resources that are free to use and easily accessible.
“Whether it is making an initial investment, managing student debt or taking out your first mortgage, make yourself as knowledgeable as possible using online resources.”
Maximise your inherited wealth
At some point in the future, zoomers are likely to inherit wealth from their family. Depending on their home country, family wealth may or may not be subject to inheritance tax, says Mr Spence. However, more and more countries are starting to tax wealth upon death.
“You might find yourself in a situation where you would need to pay a substantial tax bill before you get any access to your inherited wealth. You should speak to your family to check if they have any provisions to cover their inheritance tax liability,” he says.