Early Career Financial Planning
One of the best ways to have a successfully planned financial position later in life is to use financial planning early in your career. Like anything, a goal without a plan is just a dream. You need a plan to pursue your financial goals.
If you’ve ever enjoyed the shade of a tree, it’s because someone planted that tree many years ago. Building wealth is best started early in your career when that money has the most time to grow.
Goals Take Time
Early in your career you’re most likely getting used to managing your household expenses and creating financial habits, hopefully within the limits of your income, such as:
- Budgeting and saving for short-term goals such as financial emergencies, buying a home or car, or taking a vacation
- Managing student loan debt and other debts
- Understanding credit scores and building credit
- Planning for future expenses such as starting a family or going back to school
- Starting to build an emergency fund
Understanding your household cash flow will help you build the financial foundation for your own financial well-being.
Getting Started With a Financial Plan
It might be early in your career and you might not have much saved/invested yet but setting goals and designing a strategy to pursue those goals will help determine the financial habits you will repeat over many years. That is, a decision to have a financial plan is a decision to put your money on a mission.
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Contribute More Than The Match
Your company may offer to match 3% (matching contributions, if offered, are entirely a company policy) but do not mistake that percentage for the percentage you may need to contribute to reach your retirement goal. The percentage you may need may be much higher.
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More Than Your Company’s Matching Contribution
One of the best financial decisions you can make, if your company offers a retirement plan with matching contributions, is to maximize that matching contribution. If your company offers to match up to 3% of your contribution, then you should consider making a contribution of 3% of your compensation toward your retirement account. Your 3% plus your company’s matching contribution of 3% results in 6% of your compensation going into your retirement account. That’s a guaranteed 100% return on your contribution, immediately.
Here’s a Trick to Save Without the Pain
After determining how much you may need to contribute (save/invest) each paycheck toward your retirement goal, here’s a trick to increase your contributions gradually without sacrificing your take home pay: when you get a raise, allocate part or all of your raise for automatic deductions toward your retirement account contribution. That way, you won’t take home less but you will set yourself to make significant progress. Every paycheck, you’ll be making noticeable progress toward your retirement goal.
Am I On Track?
Today’s personal financial planning software takes your income, expenses, your goals, your resources, and assumptions and shows what your financial future may look like in 5, 10, 30 years. That’s like having a financial north star to help guide you over many years toward the financial future you want to create.
Some financial plans are based on do-it-yourself software. Another option would be to hire a financial advisor or planner who subscribes to an updated, industry-leading financial software package. The advisor offers customized analysis, observations, insight, and recommendations you might miss by using DIY software. Financial planning software shows your progress toward your goal and will help you remain “on track” (because you’ll have a track to remain on).
Take Our Quick Financial Quiz
How financially literate are you compared to the average American? You can take one of the shortest of those financial literacy quizzes here (it’s only 6 questions) to get a taste of the questions asked.
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