Tips for Managing Your Finances at Every Career Stage
Do you remember your first job? What about your first paycheck? Do you remember if you rushed out to spend it or if you were already saving for something big? For many people, earning a salary is a crash course in financial literacy. That’s because far too many people aren’t learning basic financial best practices early enough in life. In fact, fewer and fewer Americans are financially able to retire, and credit card debt is at an all-time high.
Fortunately, with proper planning and financial management, most common financial pitfalls are fairly easy to avoid. Let’s take a look at what you can do at each stage of your career to build wealth and achieve the financial future you really want.
When you first enter the workforce, normally between ages 20 and 25, you’re probably starting at the bottom. Whether you’ve earned a degree or not, entry-level positions almost always equate to entry-level salaries. Even at this career stage, there are still some things you can do to start preparing your finances for brighter days.
Define and Document Your Financial Goals
It’s important to have a plan for your finances, but where should that plan lead you? That’s up to you to decide. Your plan may coincide with major life milestones, such as getting married or welcoming a child, or it could focus on something more material, like buying a car or a home. Either way, the earlier you identify your financial goals, the easier it will be to budget and save for them.
Learn How to Budget
Budgeting is the cornerstone to financial success. Learning to budget is one of the most important lessons in life, and this is the time to start doing it. Putting in the hard work early in life will prepare you for success as your career progresses. Start by reviewing some budgeting basics and learning what works best for you.
Pro-Tip: Do not underestimate the importance of an Emergency Fund. We highly recommend setting aside $1,000 in a savings account that can be out of sight and out of mind. This fund is important because it can save you from having to finance an unexpected expense like replacing an appliance or repairing your car.
Live Within Your Means
Taking on too much debt is a common mistake for people early in their career. If not managed properly, debt can quickly become the biggest enemy to your long-term financial goals. This is not the time to buy that flashy new car. Instead, find something reliable that you will keep long enough to pay off.
The same rule applies to housing. It can be very tempting to purchase a home if you’ve been renting, but it’s important to do your homework and make a wise investment decision. Remember, buying a home can be great for your financial future, but it is imperative that you know what you’re signing up for when you make the jump from renting to home ownership. Otherwise, you may bite off more than you’re ready to chew.
Minimize Your Debt
Sometimes debt simply seems impossible to avoid. Whether you’re a recent grad saddled with student loans or a seasoned professional paying off a large medical expense, debt can seem like an obstacle that never goes away. While sometimes we may take on debt to navigate certain situations, there are right ways and wrong ways to go about managing it.
If you’re struggling to get ahead on things like credit cards or student loans, you might consider consolidating your debts with a low interest personal loan. This will allow you to cut down to a single monthly payment and may help you save on your interest payments each month. It’s also a great idea to look into refinancing higher interest collateral loans if you have them. For example, refinancing an auto loan may help reduce your monthly payment.
As most people progress in their careers, you generally expect them to receive new opportunities and better pay. A higher salary can help you reach your future financial goals, but it can also lead to a false sense of security if you don’t remain diligent with your planning and budgeting. Here are a few tips for making the most of this phase in your career.
Get Serious about Saving
Each pay increase you receive over the course of your career is a new opportunity to pay more toward your debt or pad your savings. If you have been budgeting responsibly, you should have no trouble applying each pay increase toward one or both of these goals. As you pay things off and get out of debt, you will be able to contribute those newly-freed funds towards saving for the future.
Don’t Miss out on Your 401(k)
In today’s world, it has become increasingly common for mid-level professionals to move around between employers. Should you find a better opportunity and change jobs, do not leave behind your retirement savings during the transition. Always roll over your 401(k) account to your new employer or transfer the funds to a tax-friendly IRA.
Pro-Tip: Employer contributions to employee 401(k) accounts are a terrific job benefit that young people don’t always appreciate. No matter how far you feel you are from retirement, take advantage of employer matching programs if they are available.
Evaluate Your Insurance
Even if you feel like everything is going great, never forget that life can throw curveballs at any time. Insurance comes in many forms and helps keep you and your finances protected. Take time to learn about some common forms of insurance typically offered by employers at a discount, and enroll in the ones that make sense for you, including:
Concentrate on Your Credit
With debt getting paid down and savings reaching more comfortable levels, now may be the right time to begin reaching for some of your financial goals. Just remember, buying a luxury car or moving into your dream home will still be out of reach if your credit score isn’t where it needs to be. If you aren’t sure about your credit, there are steps you can take to improve your score.
Keep Thinking Ahead
As you continue making strides toward reaching your financial goals, don’t stop thinking about what’s to come. This may mean tackling some home improvement projects or even moving to a bigger home altogether. It could mean expanding your family. Everyone’s goals will be different. Regardless, before you start putting your hard-earned dollars to work, you must first make sure you have your safety net in place.
We’ve already discussed the importance of setting up an emergency fund. By this point, it’s time for that fund to expand. As you begin shifting more of your money toward bigger, more long-term investments, it’s important that you have savings available to cover your expenses for three to six months in case of any possible setbacks along the way. Think of it as a means of recession-proofing your life. As you work towards various financial milestones, you must always remember the lessons from the past. Keep living within your means and remember that rainy days are always a possibility.
If one of your financial goals is retiring, the value of skillful planning and disciplined budgeting cannot be overstated. Here are a few tips that will ensure you are financially able to stop working when and how you choose.
Review Your Retirement Plan
By this point, you should be contributing to a 401(k), IRA account, or some other financial vehicle for a while. It’s pretty easy to set these types of accounts on autopilot, but as you get closer to retirement, it is imperative that you understand how they are performing. Learn the basics of these accounts and monitor your portfolio’s performance from month to month. Above all else, engage a skilled wealth management professional to help with your retirement planning so you stay on track. By staying abreast of what’s happening in the market, professional planners will be well suited to ensure that your investments are aligned appropriately with your retirement goals.
Pro-Tip: Always consider the rising costs of things like housing, healthcare, and daily expenses. Many people retire with enough to cover today’s expenses, but you have to remember that because of inflation, tomorrow’s expenses may be significantly higher.
Don’t Stop Saving
Earlier in your career, you might think of your savings as a protective measure. We’ve talked about the importance of emergency funds at different stages of life. By now, let’s say you are well established and have all the funds you really need – even in the event of an emergency. However, at this point your savings should be far more important to you than your emergency fund. This is your means of building wealth.
Building wealth goes beyond 401(k) contributions or even having enough for a comfortable retirement. Building wealth means being able to set future generations of your family up for financial success. Through wise budgeting and careful investing, your money can continue working toward accomplishing your financial goals even after you’re gone.
Begin the Legacy Planning Process
As you near retirement age, births, deaths, and even divorce often become a reality for many. Your financial future should include preparations for all possibilities. Legacy planning is one way to do this. Your plan should include the following:
- Will or Trust
- Power of attorney
- Designations of beneficiary
- Letters of intent
- Healthcare power of attorney
- Designations of guardianship
While these topics may feel uncomfortable or intimidating, they are important. Preparing for the future, while you are able, will put your family in the best possible position in what is sure to be a difficult time.
If everything goes according to plan, you will be able to retire with enough money in the bank to enjoy your golden years. However, even after retirement, there are some financial practices you may want to consider.
Review Your Investments Regularly
If you have realized the dream of retirement, it is important to keep a close eye on your investments. We recommend working closely with a wealth management professional and a licensed CPA to ensure your finances stay on target. As we mentioned above, planning for inflation is important, but it’s not always possible to forecast the future. Taking a regular inventory of your financial standing will ensure that once you retire, you are able to stay retired.
Think about Downsizing
Moving into a smaller home in your later years can help reduce expenses and free up your time. By reducing or eliminating things like property taxes, utilities, and maintenance responsibilities, you will have the time and resources to focus on more important things. Depending on your goals, making the move from a larger family home into a smaller house or even an apartment can go a long way toward improving your quality of life.
Make Plans for Long-Term Care
As we age, our needs are bound to change. If you do not have long-term care insurance or a plan for your ongoing care as you become less independent, we recommend speaking with your family about your concerns. Remember, aging means different things to different people, but it happens to us all. As the years pass by, you will want to be prepared for any situation.
The Importance of Asking for Help
No matter where you’re at in your career or what your finances look like, we all need a little help sometimes. At First Service, our team of caring professionals are here to help ensure you have everything you need for financial success. If you have a significant financial decision on the horizon, we highly recommend speaking with one of our friendly, knowledgeable wealth management professionals to develop a plan that will help you reach your financial goals.30
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