Personal Finance for Young Professionals

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Financial freedom is empowering. As a young professional, you are probably faced with more financial freedom than you have ever had before. Before you rush out and start spending it, here are some essential tips to help you make your financial freedom last through the ups and downs that are inevitable in life.

  1. Start Planning for Retirement Now. I know, you just came to the workforce and you are looking forward to 30 or 40 years before retiring. But, starting to save now for your retirement creates a healthy financial habit and will relieve your financial burden in the future. Consider the lifestyle you want when you retire and the costs associated with that lifestyle. There are retirement calculators available to help you determine how much you need to start saving each month.

For example, if you are in your early 20s and expect to retire in your mid-sixties and you want to retire with $5,000,000, you will need to start putting away over $2,000 per month in an account that averages 6% return. Do not let this dissuade you from your goals! Your income will increase over the years and as it does you can increase your retirement account and investment account contributions. The important thing is to start saving now.

Another scenario is that if you start saving $200 per month now, your account will be over $500,000 by the time you retire. Every cent you earn does matter. Make it count. In general, you want to set aside 10%-15% of your monthly income towards retirement. Do this and you will never have to worry about the money you need for retirement.

  1. 401ks: If your company offers 401k matching, take advantage immediately! Always contribute to IRS maximum contribution levels. Your company may match $.25 per every dollar you contribute to the account – that is free money that helps to build your retirement account.
  2. Evaluate the Benefits of Traditional vs. Roth Accounts: The difference between these two, is you either pay taxes now or pay taxes when you draw the money. While it may be tempting to pay the taxes later, remember that you will probably be paying a higher tax rate at that time because of your increase in income and the tax situation. Many financial experts recommend that young professionals pay taxes now, at the lower tax rate than in the future.
  3. Emergency/Contingency Fund: Create a liquid emergency fund with a minimum of 3 months of expenses but preferably six As your income grows and your expenses grow, keep feeding your emergency fund to ensure you can cover all of your expenses in the event of an emergency or job loss. Keep these funds in checking or savings that you can readily access without penalty if an emergency arises.
  4. Manage Credit: As a young professional, you will be offered credit from every credit card company. It can be tempting to spend. Resist this temptation. Use credit wisely and pay off your balances each month whenever possible.
  5. Investments: In addition to funding your retirement account, start investing. The general rule of thumb is that the younger you are, the more risky/high return investments you can play with. As you get older, it is important to move from risky investments to more stable ones.
  6. Budget: Living on a budget isn’t fun now but it will let you achieve the financial goals you desire. Keep an eye on spending and guard against reckless spending.
  7. Meet with an Accountant: As a young professional, an accountant can help you build wealth, plan for retirement and limit your tax liability each year. Use them as your trusted advisor to help you manage your budget and maximize your financial future.
  8. Have Fun: With all of this talk of saving, investing and budgeting — don’t forget to have a little fun, you’ve earned it.

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