When you’ve landed your first “real” job, it’s also time to get serious about your finances and planning for your future. As tempting as it can be to have a little fun with your hard-earned money, setting yourself up for success in the long-term is more important. This is why I always recommend that young professionals just starting out read the book The Richest Man in Babylon by George Clayson. This book provides some tried-and-true tips based on ancient wisdom to help set young professionals up for long-term financial security.
1. Cut Back on Spending
One of the biggest mistakes young people make after securing their first jobs is getting careless with their spending. While it’s true that you may be making more money now than you have at any other point in your life, this isn’t a free pass to start spending with reckless abandon.
If you don’t already have a budget in place, now is the time to create one using one of the many free apps available. Ideally, you should be allocating at least 10% of your salary to savings. From there, your other essential expenses should total no more than 50% of your income. As you review your budget, take some time to notice where you’re spending more money than you’d like (dining out or entertainment, for example) and cut back.
2. Get Serious About Investing
There’s a good chance your employer offers some sort of retirement plan. If you’re lucky, you might even have access to a 401(k) plan where your employer will match some or all of your contributions to the account. Be sure to take full advantage of any retirement plan offered by your employer—especially one with contribution matching! This is the simple easiest and most effective way to grow your nest egg.
Plus, the earlier you start saving for retirement, the better. That’s the power of compound interest.
3. Don’t Fall for Scams
When you first start making “real” money and are dipping your toes into the world of investing, things can seem a little overwhelming. With so many different investment opportunities, it’s hard to know what’s legitimate versus what may not be.
Take some time to familiarize yourself with common investment strategies and educate yourself as much as possible on different investment processes. The last thing you want is to fall victim to a financial scam that puts your monetary security in jeopardy. This is also where it can be useful to have an experienced financial advisor that you can turn to for guidance on your investments and other decisions.
4. Diversify Your Portfolio
Once you’ve begun building up your wealth through basic investments (including a retirement plan), you may also want to start diversifying your investment portfolio a bit. This means taking on a greater range of different investments with varying risks to increase your potential returns. Generally, it is best to wait until you’ve established some success with your previous investments before you start diversifying too much; having that experience under your belt will make all the difference here.
5. Buy, Don’t Rent
Ιf you’re still renting your residence, you could be missing out on one of the greatest investment opportunities of all: homeownership. While renting certainly has its benefits, owning a home is a smarter choice from a financial standpoint. If you plan on living in the same area for at least the next couple of years, you will typically get more “bang” for your buck by purchasing a home (or condo) outright. From there, each mortgage payment you make will be an investment in your future rather than just another monthly expense that pads somebody else’s pockets.
6. Always Strive for Better
No matter where you are in your career (entry-level position or higher up), you should always be striving for improvement. Making an effort to stay on top of changes in your industry and keep up with the latest in training/education will help you stay relevant and competitive. This, in turn, will make you more desirable for promotions, raises, and other career advancement opportunities that will put you in a better financial position.
7. Protect Your Family and Property
As important as it is to be proactive about investing and building your nest egg, it’s perhaps just as vital to protect what you already have. If you don’t have a life insurance policy in place, it’s never too early to purchase one. If you’ve recently bought a home, make sure that investment is also properly protected. The peace of mind alone is worth the price.
The Final Word
These strategies are sure to help young professionals get off on the right foot when it comes to their finances. From cutting back on spending to investing wisely, a little effort goes a long way in securing a more stable financial future.
If you have any questions regarding this article, or if you need further assistance regarding your unique financial or tax situation, send us an email at info@zagmoutcpas.com, or call us at (312) 239-3716.
To learn more, visit Zagmout & Company CPAs at www.zagmoutcpas.com.
