Financial Planning for Young Professionals
Today, young professionals face different financial challenges compared to prior generations. While many face mounting student loans and credit card debt, with time, expertise and the right resources, they can protect new assets and build a bright financial future.
Here are six fundamental financial planning principles that every young professional should embrace.
1) CREATE A BUDGET AND LIVE WITHIN YOUR MEANS
Through the process of creating a budget you will begin to understand and evaluate how and what you spend your hard-earned dollars on each month.
2) CONTROL YOUR DEBT
As a general rule, if you don’t have the money, don’t spend it. If you have debt, you need to know how much you are paying in interest and do your best to reduce the balances and interest rate. Consider debt consolidation or negotiation.
3) SAVE FOR RETIREMENT
Don’t wait until you “get paid more” or until you “have extra money.” Take advantage of the tax and compounding benefits of your company’s 401k plan and try to defer at least 10% of each paycheck. You may not have a lot of money at this stage of your life, but you do have something much more valuable – time. It’s never too early to start saving for retirement.
4) PLAN FOR THAT RAINY DAY
Set aside enough money to cover your expenses for 6 to 12 months in the event of a job loss. It can also mean investing in an insurance policy to protect against an accident or unexpected illness and the resulting expense and loss of income.
5) PAY YOURSELF FIRST
This doesn’t mean buying yourself something first – an important distinction. Automate this savings strategy as much as possible to keep you from spending your money and paying yourself last. These funds can be used to build an emergency fund, save for a down payment on your first home, starting an investment account, etc.
6) DON’T BE AFRAID TO ASK FOR DIRECTIONS
Use the Internet when possible, but if you find yourself in unfamiliar territory don’t be afraid to seek expert advice. It is better to ask for directions than to be lost.
As a young professional, you are at the starting gate of life’s personal financial marathon – stick with the principles and keep putting one foot in front of the other – before you know it you’ll be celebrating at the finish line with champagne!
“COMPOUND INTEREST IS THE MOST POWERFUL FORCE IN THE UNIVERSE, HE WHO UNDERSTANDS IT, EARNS IT... HE WHO DOESN’T... PAYS IT.”
– Albert Einstein
Information contained in this article is for informational purposes only and is not to be considered investment advice or an offer for the purchase or sale of an investment product.