Financial Planning for the Early Stage of Your Career
Financial Planning isn’t just for retirees.
The rise of cryptocurrency, Robinhood, meme stocks (GameStop anyone?) and #finfluencers on TikTok over the last several years have made it harder than ever to tune out the noise that can distract young professionals. That combined with easier access to financial planning has led professionals to seek financial planning earlier in their careers than ever before. They are seeking answers to big questions:
What can I do to get ahead?
How should I think about my financial future?
Am I on track compared to my peers?
You’ve recently started your optometric career and are finally making money. It’s a great feeling! But also - more money often means a more complex situation.
It’s important to get started out right to build wealth, and there are some easy steps you can take to keep more of the income you’re making, relieve your debt burden more quickly, and get your new assets working for you.
Step 1: Maximize Your Employee Benefits
Many people don’t think of it this way, but your employee benefits are worth real money if you deploy them thoughtfully.
Whether it’s employer-paid health insurance, pre-tax contributions to commuting expenses, or health and wellness perks, the time spent reviewing your employee handbook can keep more money in your pocket and lower your taxable income.
The most valuable benefit though? Your employer-sponsored retirement plan.
Contributions to traditional retirement plans are tax-deductible, so it’s generally recommended to contribute as much as possible to maximize tax savings. A rule of thumb is that 15% of your salary should be earmarked for your 401(k) contributions.
However, if your employer matches your contribution, at least make sure you contribute enough to get the employer matching funds. Not taking advantage of this benefit is leaving money on the table.
Step 2: Plan Your Cash Flow
You worked hard in school and you're finally making real money. You deserve that trip, car, or apartment makeover you’ve been eyeing. It will feel good, but it can quickly get out of control if you’re not careful.
With increasing income often comes the temptation of “lifestyle inflation.” You can avoid it by having a cash flow plan that prioritizes building wealth for now and later.
Cash flow planning is about tying your income to goals to see where you need to make changes, whether that’s changing your investing mix or refinancing debt. It’s not just about budgeting and spending less – it’s about having a smarter plan.
Start with your income, identify your expenses, work from there. Give every dollar a “job.”
Pro Tip:
Budgets don’t have to be complicated. Simply knowing what your monthly income and expenses look like can help you avoid the stress of the unexpected.
Step 3: The Emergency Fund is Real
Expect the unexpected. Sooner or later there will be a situation where you need $1000 quickly. Maybe you take your car for routine maintenance and they find a major problem. Or maybe an unexpected medical expense comes up. These emergencies could even pop up at the same time! Having a solid emergency fund to draw from could be the only thing between you and credit card debt beginning to pile up.
How much do you need? Most experts recommend that your cash reserve should consist of 3-6 months of your living expenses. If you are married and both spouses have a stable income, you could probably get away with 3 months. If you’re single or have an unstable career, err on the side of caution and keep 6 months or more of living expenses in savings.
It’s generally recommended to keep your emergency fund in a high-yield savings account so that it can earn slightly higher interest than it would at a traditional bank. Keeping it at a separate bank all together from your daily checking account will create an additional barrier to prevent you from “breaking the glass” unless it is a true emergency.
Step 4: If You’re in Debt, Get Out of It
Even with relatively low interest rates, debt can get expensive. What can you do to minimize debt?
First, set up auto-pay. You certainly don’t ever want to miss a payment, and autopay avoids that. Often as a bonus you’ll get a tiny discount for having autopay in place
Second, based on your cash flow, bump up your payments. Adding extra money every month to your original payment schedule can help you pay down debt faster. The faster you pay off the debt, the less interest you will pay.
If you have multiple forms of debt, concentrate on eliminating the debt with the highest interest rate first while making minimum payments on the rest. This minimizes the total interest paid. However, if you struggle to get motivated to pay off your debt, focus on eliminating the smallest debt first. This will give you little “wins” on the way to getting out of debt.
Do you have a plan?
The goal of financial planning is two-fold: to help you enjoy your money now and to ensure that you are setting yourself up to achieve your life goals in the future. Money is nothing more than a tool to get you where you want to be. At Foresight Financial Planning, we teach you how to make informed decisions with your money. We’re by your side every step of the way, from early career, all the way through retirement.
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