As a young professional, no matter whether it’s your first job or your fifth job, or if you’re earning $45K or $120K—it’s vital to know how to manage your money properly. It’s important for young adults to understand that ‘financial planning’ in the traditional sense of the phrase no longer needs to be restricted to just those that are approaching retirement.
Even though ‘the future’ can seem a long way off in your 20s and 30s, investing in a few meetings with a financial planner (or at least getting on top of managing your money and knowing how to budget properly) can massively affect your financial position when you get older.
Here’s a fresh look at some of the best ways to approach financial management as a young professional in 2019.
What exactly does a financial planner do?
Financial planning is about taking longer-term financial goals (like buying a car, buying a house or saving for retirement) and breaking them down into smaller, achievable goals.
Financial planners (or financial advisers) help young people to achieve these goals by working on basic principles like working out an effective budget, putting goals and objectives into perspective, sorting out (and consolidating) superannuation and maybe starting off an investment portfolio.
How can they help you as an individual?
A financial planner will be able to work with you on things that are specifically important to you and your goals, as well as to your specific financial situation. A financial planner may be able to help you with:
- Cash flow management, tax-effective strategies, and structuring
- Investments and accumulating wealth
- Debt management
- Superannuation and self-managed super funds
- Personal insurances like income protection, life insurance, and trauma insurance
- Business insurance
- Estate planning
Financial planners are also able to help as your life circumstances change. As we go through different stages of our lives, we may have different income levels, however, we’ll also have different expenses and needs. A financial planner can help you survive through the financial hurdles that life may throw at you while ensuring that your financial plan is adapted effectively to ensure it’s working for you.
Making a budget and managing your money
Did you know that in 2018, the average amount lent for small loans was $812? People used this for a variety of things like booking their dream holiday to emergency repairs on their home. That’s why it is important to enlist financial advice.
Enlisting the help of a financial planner so that you can get serious about making a budget and managing your money is a really good move. They’ll be able to take a detailed look at your monthly income and expenditure, and then work out ways that you can maximize your money with a few simple tips and tricks.
However, if you’re not quite at the stage of hiring a financial planner just yet, it’s pretty simple to put together a budget so that you can start understanding where your money really goes (and consequently improving on your spending habits).
Make it as simple as possible
- Write down your total monthly income and then split it into three different income ‘types’.
- The first type is essentials, like rent, bills, and groceries. This type is known as your ‘fixed costs’.
- The second type is savings for investments and big purchases. This type is known as your ‘save’.
- The third type is luxuries (things you want but don’t need, and entertainment). This is known as your ‘splurge’ type.
From there (and this is the most time-consuming part), you need to go through and track how much you’re spending in each category. Take your time with this to make sure you do it right and that you only have to do it once. Also, don’t forget to include things like magazine or television subscriptions, mobile phone costs, internet costs, and gym memberships.
Once you’ve figured this out, you can then make the tweaks you need to reach your goals. A good way to do this is to develop an action plan – whether it means moving house to find a place with less expensive rent, figuring out a way to spend less on your weekly grocery shop, finding a cheaper gym or sourcing a more cost-effective energy provider.
As a young professional, how should I be investing?
At this time in your life, you’re basically enjoying the most financial freedom you may ever experience (besides from retirement). You might not have a mortgage, children or a partner that needs tending to, leaving your money to be yours and yours alone. But what should you do with it to ensure it grows?
- Invest early and reap the rewards of compound interest – Compound interest is the type of interest that you accrue when the interest you earn on your savings or investments begins to compound on itself. Start investing early and you could have a seriously nice nest egg by the time you get to retirement age.
- Automate your investments (and then forget about them) – Setting up an automated savings plan will help you to train your brain to save, without having to decide between delayed gratification and instant gratification.
- Invest in yourself – No matter what is going on in the financial market, you’ll always be able to invest in yourself. Take the time to upskill yourself professionally or personally, and financial growth could very well come as part of the package!
Taking steps towards a bright financial future
All in all, it pays to get your money management, budgeting and investing skills in order as a young professional. A financial planner will be able to work with you to develop some key goals and aspirations, and then develop a tangible plan to help you achieve these.
This is a guest post by Luke Fitzpatrick. He is an academic speaker at Sydney University. He enjoys writing about tech, productivity, lifestyle, and is a contributor to Forbes.