Six Tips for a Successful Financial Future
For a young professional, it can be easy to put financial planning on the back burner. After all, you probably expect to have many earning years ahead of you, and you may be busy with life transitions like marriage, buying a home, or having children. Still, we believe it’s important to keep an eye toward the future and to take steps in the present to give yourself more financial security in the short- and long-term. Below, we’ll review six young professional financial planning considerations and tips you can begin putting into practice now.
#1: Understand (And Stick To!) Your Budget
One of the best foundations for a strong financial future is to create and follow a realistic budget. You can track your income and expenses in many different ways. Some people prefer to do it manually, with paper and pen or with a spreadsheet. Others use popular apps that link your accounts, like Mint or PocketGuard. The only right technique is the one you’ll stick with, so choose what works best for you.
Here’s an important note: the goal is not to follow your budget 100 percent of the time. In fact, holding yourself to impossible standards is a quick way to lose motivation and abandon your budgeting goals altogether. Therefore we believe your true goal should be to understand your cash flow and spending habits, so you’ll better know how to allocate your income to saving or spending needs.
Once you’ve got a handle on where your dollars are going – and you know you’re living within your means – you can make a plan to build your emergency fund. We believe everyone should have one, even high-income earners. You can start by working to save three months of living expenses, then move to six months. If you have a commission-based job, such as real estate, you may want to add additional months for income security. Setting up automatic payroll contributions into an account designated for emergencies only is an easy way to ensure you save consistently.
#2. Get Interested in Your Credit Score
Building strong credit is crucial for many life goals for Americans, including buying a home. Having a good credit score gives you an opportunity to secure better interest rates for mortgage loans, but also for things like student loan refinancing or even credit cards.
Aim to check your credit report annually for free at AnnualCreditReport.com, which is authorized by the federal government. You should scan your report for errors, including fraudulent accounts you didn’t open. If you don’t like the amount of debt you see or you aren’t happy with your credit score, you can take a few simple steps to make steady progress over time:
- Pay your bills on time
- Keep low balances on credit cards (or pay them off monthly)
- Lower your debt-to-credit ratio
Keep in mind that credit scores require time and effort to build and maintain, so be consistent with these small steps and you’ll soon begin to see progress.
#3: Tackle Your Debt Intentionally
Debt is one of the most common financial planning challenges facing young professionals. When you’re making significant debt payments each month, it can be difficult to find resources to save for the future. Make a plan to get out from under your debt, starting with your highest interest debts first. Typically, this will mean paying off credit cards and personal loans as quickly as you’re able. Many people use the debt avalanche method to accomplish this goal.
If you find yourself lacking the motivation to stick with the debt avalanche, maybe the debt snowball method is a better option for you. Instead of tackling debts with high interest rates first, you begin with a plan to pay off your smallest balance first. An early win can motivate you to stick with your debt payoff plans and tackle those larger balances.
#4: Start Your Retirement Fund
It might be the last thing on your mind as far as young professional financial planning goes but getting an early start on saving for retirement can make a significant difference in the financial security you enjoy in your golden years. If you have access to an employer-sponsored retirement plan, we would typically suggest you take full advantage of it. Find out whether your employer matches contributions and try to take full advantage to get the full match. If you don’t, you’re leaving free money on the table.
If you don’t have a retirement plan through your employer, don’t despair. You can open a Traditional IRA or a Roth IRA on your own. Both offer tax advantages and will help you enjoy the benefits of compound interest to help your savings grow over time. If you’re eligible for a Health Savings Account, opening one can be an effective young professional financial planning move. Not only can you save for future medical expenses, but you can sock away additional money for retirement, too.
#5: Protect Your Financial Security
Consider what you would do if you were suddenly injured or suffering a serious illness that left you no longer able to work. Do you have a contingency plan? If you’ve consistently built an emergency fund, chances are you could pay your bills for several months. However, adding an additional layer of protection using disability insurance can give you greater peace of mind.
Speaking of insurance, if you have a spouse, children, or aging parents who rely on you financially, you should consider life insurance, too. There are many affordable term-life policies that can help you protect your loved ones, and your own financial future, too.
Getting estate planning documents in place can also add a layer of protection. Having a will is one of the best ways to ensure your assets would go to your loved ones. It’s also helpful to get healthcare and financial Power of Attorney documents in place so you can designate someone you trust to make health and financial decisions for you if you were to become incapacitated.
#6: Know Your Goals and Make Them a Priority
If there’s something on the above list that feels most important to you, why not make it your first young professional financial planning step? For instance, if you want to pay off your debt and funnel more money into an emergency fund, you can create a realistic plan and timeline for achieving it – then get to work!
Remember, you don’t have to tackle all of these items alone either. There are many financial advisors who offer young professional financial planning services. Working with a professional can help you to set helpful, achievable goals – and help keep you on track to achieve them.
Would you like to start a conversation about your young professional financial planning needs? Get in touch! At Aviance Capital Partners, we provide personalized wealth advice and investment solutions suited to you and your family’s needs. We would be happy to answer your questions in a professional and friendly way. We look forward to hearing from you!
Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of ACP as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of a tax strategy, investment strategy, and financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. This should not be construed as specific investment, financial planning or tax advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. Past performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597. For current ACP clients, please advise us promptly in writing, if there are ever any changes in your financial situation or investment objectives, if you wish to impose any reasonable restrictions to our management of your account, or if you have not been receiving at least quarterly account statements from your account custodian.
