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Financial Planning Considerations for Young Professionals

Six Money Steps to Secure a Strong Financial Future for Young Professionals

As a young professional, there’s likely a lot going on in your life, both personally and professionally. You’re building a career and climbing the ladder and you may also be experiencing big life transitions like getting married or starting a family. All of this can make it easy to put financial planning on the back burner. While it might feel like you have plenty of time to worry about finances later, getting a solid plan in place when you’re young means a higher chance of building true wealth and finding lasting financial success.

If you’re a young professional looking to make the most of your finances, here are six financial planning tips that you can employ now to make the biggest impact.

#1. Build a budget – and stick to it.

A key ingredient in any successful financial plan is a budget – and the discipline to abide by it. This can be much easier said than done, so it’s crucial that you’re intentional with this step as it will lay the foundation for all other aspects of your finances. Successful budgeting looks different for everyone. Some people choose to track their income and expenses through a checkbook or spreadsheet, whereas others like to use budgeting apps that link directly to a bank account. Whatever technique you use, be sure that the budget you set is realistic and that you revisit it frequently to make necessary adjustments as your life and career evolve.

It’s important to remember that your budget should be flexible, not something rigid meant to constrain you. Budgeting is about understanding your cash flow and spending habits so that you can direct your money in ways that serve you best. Once you have a firm grasp on where your money is going, you can begin incorporating your larger goals, such as building an emergency fund, eliminating debt, or saving for retirement.

#2. Pay attention to your credit.

Having strong credit is essential for accomplishing many common life goals. It helps you when it comes to buying a house, purchasing or leasing a vehicle, or taking out a loan. Having a good credit score means that you can access lower interest rates on loans and credit cards, and it may even help you qualify for things like student loan refinancing.

Once per year, you can get your free credit report from AnnualCreditReport.com, which is authorized by the federal government. If you’re unhappy with where your credit stands, there are steps you can take to work on strengthening it, such as paying your bills on time or keeping low balances on any credit cards you have. Just remember that it’s going to take time and patience to repair your credit if you’ve been neglecting it.

#3. Be intentional about your debt.

One of the biggest financial planning challenges facing young professionals today is debt, especially when it comes to student loans. It can be difficult to think about planning for the future when you’re facing significant debt, so it’s important that you put a plan in place to make things feel more manageable. Typically, it’s recommended that you use the debt avalanche method when paying off your debts. This means starting with the debts that have the highest interest rates first so that you’re paying less in interest overall.

There’s another method you can use to tackle your debt, as well. The debt snowball method is when you start with your smallest accounts first and work your way up. This often works for people who struggle to stay motivated, as watching those debts get eliminated reminds you of what you’re working towards.

#4. Stay focused on the long term.

It’s easy to keep putting retirement on the back burner when you’re young, but the earlier you start thinking about and saving for retirement, the better off you’ll be once retirement arrives. If your employer offers a retirement savings account, try your best to take full advantage of it by maxing out on your contribution limits. If you can’t do that just yet, focus on contributing enough to meet any available employer matches. Otherwise, you’ll find yourself leaving free money behind.

Even if your employer doesn’t offer a retirement savings account, you should still look into opening one on your own. Both Roth IRAs and Traditional IRAs come with tax advantages that make them great vehicles for saving for retirement. Health Savings Accounts (HSAs) are also a useful option, so see if your employer offers one. HSAs come with a triple tax advantage, letting you contribute money tax-free, grow your contributions tax-free, and withdraw your money tax-free (so long as you’re using it to pay for qualified medical expenses).

#5. Take steps to protect your financial health.

One of the most significant threats to any person’s financial security – young professionals included – is a lack of financial planning. What would happen to your finances if you were suddenly injured or got seriously ill and couldn’t work? Having an emergency fund is a valuable buffer to keep you afloat for a few months, and everyone should have one. You can gain an additional layer of protection by purchasing disability insurance for even greater peace of mind.

If you have older parents or children who depend on you financially, buying life insurance is also a critical financial planning move. It’s a way to ensure that your family will be protected no matter what happens. In that same vein, staying on top of your estate planning and ensuring you keep your will up to date can also add an extra layer of protection. Having all your documents in place means your wishes will be honored and your assets will go to your loved ones according to those wishes. You may think you don’t need to worry about estate planning as a young professional, but none of us knows the future so it’s essential to prepare.

#6. Prioritize your goals.

Taking time to write out your goals, tease out the details, assign them deadlines, and put a plan into place for each one will go a long way toward increasing your odds of following through and accomplishing them. The more detailed you get with your goal setting, the easier it will be to create a realistic financial planning strategy to make them happen.

It’s important to remember that you don’t have to tackle all your goals at once. Prioritizing them can help them feel more approachable and doable. It can feel overwhelming as a young professional to look at the bigger picture of your finances, but talking to a financial advisor can help. A professional can help you set achievable goals and a financial planning strategy designed to help you achieve them.

Do You Need a Financial Advisor to Assist with Young Professional Financial Planning?

At Arbor Capital, our work changes along with the seasons of our clients’ lives. No matter what happens in your life as you grow through your career and experience life changes, our team remains committed to helping you maintain the right financial planning strategy to support your short- and long-term goals. Give us a call today if you’d like to begin a conversation about your wealth management strategy. We look forward to hearing from you!

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