Financial Planning for the Early Stage of Your Career
Today I share the 4 key financial steps for early-career professionals. Tune in and set yourself up for financial success!
(Video is 4 1/2 minutes. The full transcript is below.)
Full Transcript of video
Hey friends, the Fearless Advisor here. Today I am going to discuss financial planning for the early stage of your career.
With everything going on in the market over the last two years—crypto, Robinhood, meme stocks—we’ve received several questions from younger professionals around what to do when it comes to your financial plan.
The big questions like:
- What can you do to get ahead?
- How should you be thinking about your goals?
- Are you on track compared to your peers?
Whether you have a professional degree and you’re finally making money, or you’re working your way up to more responsibility, having more income is a great feeling.
But also—more money often means a more complex situation.
How Do I Get Started with Building Wealth Early On?
It’s important to get started out right to build wealth, and there are some easy steps you can take to keep more of the income you’re making, relieve your debt burden more quickly, and get your new assets working for you. Here are four steps you can take to maximize your journey.
Step 1: Maximize Your Employee Benefits
Many people don’t think of it this way, but your employee benefits are worth real money if you deploy them thoughtfully.
Whether it’s employer-paid health insurance, pre-tax contributions to commuting expenses, or health and wellness perks, the time spent reviewing your employee handbook can keep more money in your pocket and lower your taxable income.
The most valuable benefit though? Your employer-sponsored retirement plan.
Contributions to traditional retirement plans are tax-deductible, so it’s generally recommended to contribute as much as possible to maximize tax savings. A rule of thumb is that 15% of your salary should be earmarked for your 401(k) contributions.
However, if your employer matches your contribution, make sure you contribute enough to get the employer matching funds. Not taking advantage of this benefit is leaving money on the table.
Step 2: Plan Your Cash Flow
You want that trip, car, or apartment makeover you’ve been eyeing, and it will feel good, but it can quickly get out of control if you’re not careful.
With increasing income often comes “lifestyle inflation.”
You can avoid it by having a cash flow plan that prioritizes building wealth for now and later.
Cash flow planning is about tying your income to goals to see where you need to make changes, whether that’s changing your investing mix or refinancing debt. It’s not just about budgeting and spending less—it’s about having a smarter plan.
Start with your income, identify your expenses, work from there. Check out the book I Will Teach You to be Rich by Ramit Sethi for insights in this area.
Step 3: Establish Your Emergency Fund Now
Your cash reserve should consist of 3-6 months of your living expenses, full stop. And having a cash reserve is an essential piece of your financial foundation.
It’s generally recommended to keep your emergency fund in a high-yield savings account so that it can earn slightly higher interest than it would at a traditional bank.
Step 4: If You’re in Debt, Get Out of It
Even with relatively low interest rates, debt can get expensive.
What can you do to minimize debt?
First, set up auto-pay. Very often, you’ll get a tiny discount for having autopay in place, but mostly you don’t ever want to miss a payment, and autopay avoids that.
Second, based on your cash flow, bump up your payments. Adding extra money every month to your original payment schedule can help you pay down debt faster.
If you have credit card debt, you’ll want to pay that off as quickly as possible, so prioritize that in your cash flow planning.
To wrap up, the goal of financial planning is two-fold: to help you enjoy your money now and to ensure that you are setting yourself up to achieve your life goals in the future. Money is nothing more than a tool to get you where you want to be.
If you would like to discuss how to get your financial plan started, reach out to us here at F5 Financial Planning. Thanks for joining us!
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- Do you have a well-defined Investment Policy Strategy that is used to drive your investments in support of a comprehensive financial plan?
- If not, would you like to partner with someone who is used to helping people get through these struggles and (then, with confidence) implement portfolio strategies in a systematic manner while focusing on your desired outcomes?
If so, feel free to send us an email or give us a call. We’d love to have the opportunity to help you find a bit more peace of mind when it comes to investing.
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F5 Financial is a fee-only wealth management firm with a holistic approach to financial planning, personal goals, and behavioral change. Through our F5 Process, we provide insight and tailored strategies that inspire and equip our clients to enjoy a life of significance and financial freedom.
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