Five Financial Fundamentals For Young Professionals
As a savvy young professional, you may be a pro at project
management or software development or social media strategy, but how’s your
financial literacy? If, like many of
your peers, you never got an education in financial fundamentals during your
formative years, how do you know what tools are available to you to maximize
your money come pay day?
In the flux of establishing your life and career post-grad,
it’s easy for things like retirement planning and long-term savings goals to
fall by the wayside. After all you’re
still dealing with the challenges of establishing your financial independence
on a starter salary and potentially thousands if not tens of thousands of dollars in
student loan and/or consumer debt.
It’s easy to default to “I’ll get to it someday”. But prolonging your excuses for not planning for your financial future will
undoubtedly backfire when the cold hard numbers of financing a home or a
wedding or other major life goals hit you.
So stop the excuses! Tackle your finances with the same fervor you
apply to your professional goals. Make
sure your money is working at least as hard for you as you’re working for it
by beefing up your financial literacy and following these fundamental financial
guidelines.
1. Take Financial Inventory. Do you know how much you’re spending each
month? Really? The exact number and exactly how
it compares to your earnings?
It’s hard, if not impossible, to plan for your financial
future without being grounded in the numbers of your financial present. The first step in creating any successful
financial strategy is understanding exactly where your money is going and how
you can shift the financial resources you have available to align with your
long term goals and priorities.
Track your finances with a simple spreadsheet, a financial
app, or talk to an advisor to get guidance on the best way to get an exact picture of your spending.
2. Build Your Credit. Your credit score is an essential
component of your financial profile.
Everyone from lenders to insurance companies to landlords will be using
your credit score to assess your financial reliability - whether you’re applying
for a loan or an apartment. Build your
credit by paying all bills on time and in full, and check your credit reports
each year to ensure that no fraudulent activity or mistaken reporting is
negatively impacting your score.
3. Pay Down Debt. Whether you have a couple hundred dollars
in credit card debt or six figure student loans, the key to paying down debt is
attacking it head on with a realistic repayment plan. Research your options, negotiate with your
lenders to reduce balances or interest rates, and stay on top of your bills by
building debt repayment into your budget.
4. Build Emergency
Savings. If the recession and economic
challenges of the last six years were a lesson in anything, it was the
importance of emergency fund savings. An
emergency fund can be a savings or money market account that is used to fund unexpected
emergencies like job loss, health problems, or natural disasters. Experts recommend funding this account with
at least three to six months of living expenses.
The suggestion that you would have an extra three to six
months of living expenses may seem laughable to you - but don’t let the
impossibility of such a huge number deter you from starting to save. Set aside a percentage of each paycheck, 10%
is a good benchmark, but as little as 1 or 2% can make a difference, until
you’re fully funded.
5. Plan for
Retirement. You don’t have to be an
investment genius to benefit from early retirement planning. With the help of a financial planner and some
knowledge of basic retirement funds, namely 401(k)s and IRAs, you can enjoy the
exponential growth of compound interest over time. The key is to start now!
Keep in mind that you don’t need to address these issues one
at a time or in this specific order. For
example, many find that it is best to tackle a couple of items at a time to make strong
progress towards their life goals. The
best plan for you should be specific to your life, so prioritize what is most
important to you and make a commitment.
You will see exciting changes sooner than you realize!
