What Young Professionals Need to Know About Financial Planning
“Do you have a financial plan?”
The question surprises some, frightens others, and creates a certain amount of apprehension in almost everyone who hears it. According to a study by Charles Schwab, only 25 percent of Americans have a written financial plan. But the same survey suggests that if you have a written plan, you’re more likely to save on a regular basis, pay your bills on time, and be less likely to engage in frivolous spending.
Cause and effect? Maybe. But one thing is certain: The need for financial planning applies to everyone regardless of age, occupation, income level, marital status, or annoying generational category. Everyone should have some personal financial awareness, goals, and plans. Sure, it takes some time and effort, but all of the best things in life are that way.
It’s time to get started.
It begins with your financial goals
A Google search for “financial planning” suggests that the first step on the road to your future is to make a budget, then spend less and save more. That’s good advice, but before you do that, shouldn’t you decide what you are saving for? Retirement? A home? A once-in-a-lifetime trip to Europe? A rainy day? What about everything between now and then?
Most people have competing goals ― there just isn’t enough time or money to do everything all at once. Determining what is most important to you can help clarify the challenges of limited resources.
Everyone has personal goals and they’re not all financial (although you would be surprised how financially dependent most goals really are). You may have short-term goals like building an emergency savings account or taking more time to travel; intermediate term goals like buying a home or getting married; and long-term goals like paying off student debt or owning a business. Define your goals and write them down. You may never start planning until you do.
First things first: set some priorities
Most people have competing goals ― there just isn’t enough time or money to do everything all at once. Determining what is most important to you can help clarify the challenges of limited resources. Maybe planning for retirement is important in the long run, but you would really like to eliminate your car payment first. Saving for your newborn’s education is important, but paying off your own student loans may take precedence.
Sometimes the best financial decision based on the numbers isn’t the easiest emotionally. Balancing priorities usually takes discipline and sacrifice. Weigh the pros and cons of your choices and do what you think is right for your goals and circumstances.
So what’s the plan?
Once you’ve set your goals and priorities, it’s time to outline a plan of action. When it comes to saving and investing money, the data suggest that the old adage “pay yourself first” will significantly increase the likelihood of hitting your mark. Automatically moving funds from your paycheck to a savings vehicle, either through an employer retirement plan like a 401(k), a savings account at the bank, or some other investment, lets you put money away before you have a chance to spend it. A similar strategy works well for debt payments like your student loans or your car. The more you can make automatic, the more likely you are to reach your goals.
Expect the unexpected
You’ve spent hours planning and maybe months or even years working toward your goals. Then something unexpected happens. Now what? Are you prepared if you or your significant other becomes disabled and can’t work? What if there is a significant health issue and you aren’t able to make decisions for yourself or your family?
While these situations are unpleasant to think about, planning for them allows you to have a say in the decisions that are made. Working with an estate planning attorney can help clarify who makes financial or medical decisions on your behalf, or who steps in to take care of your children or pets if you aren’t able. Insurance planning is equally crucial as it can replace income if you are unable to work or pass away. It applies to those who are beginning a career and single just as much as it would to a seasoned professional with a family.
How we can help
CLA can work with you regardless of your income, account size, or the stage of your career. When we get to know you, we can help you with goals-based financial planning and investment management, objective advice, deep resources, and a commitment to helping you achieve the financial security you deserve.