Are you looking for a financial advisor for young professionals?
As per the findings of a GoBankingRates survey, 69% of Americans have less than $1000 in their savings account, and it’s millennials that are struggling the most to save.
The key to saving and building wealth is sound financial planning early on in life. And that’s why we have compiled this financial guide for young professionals. Here, we’re going to give you some expert tips to better manage your personal finances.
This is what a financial adviser could help you with, help you plan, manage and execute. A financial adviser will remove the stress and doubt, allowing you to work and make more money.
1. Set a Budget and Track Your Spending
When it comes to handling your personal finances, budgeting is the best technique that you can follow to secure your financial future. Budgets prevent you from overspending provided that you stick to them.
A popular rule for breaking down your budget is the 50/30/20 rule. According to this rule, 50% of your income should go into necessities like housing, bills, food, etc. The next 30% should be for your lifestyle choices, entertainment, holidays, etc. Finally, the last 20% should be secured for debt payments and savings.
This budget plan can work very well for most people unless you’re highly indebted or have any special financial obligations. Nevertheless, financial experts have come up with other budgeting approaches as well.
Along with creating a budget, you should also get into the habit of tracking your spending habits. They should be according to what your income allows. Planning monthly menus, limiting your leisure activities such as eating out, and cutting down on shopping are some ways in which you can control your monthly expenditures.
2. Build a Good Credit History
Your credit history says a lot about how reliable you are when given a loan. It shows your capacity to pay off your debts on time. If you pay your debts diligently, banks and other financial institutions will not hesitate to lend you more money in the future.
On the other hand, if your interest builds up and you skip payments, your credit score will go low and you will face a lot of difficulty getting approved for loans.
A good way to start building your credit report is by using a low limit credit even if you don’t need it. Paying it off at the end of each month will show that you can handle your credit responsibly.
A general good practice is to not use more than 30% of your available credit limit. In case you get close to the 30% mark, make a payment to bring it down again.
3. Avoid Co-Signing
Never cave in when a family member or friend tries to convince you to co-sign for a new loan or a car because they have a poor credit score. The reason most people need a co-signer is that they have a history of missing payments or paying late.
You don’t want any unnecessary financial obligations for yourself and be in a situation where you become liable for someone else’s debt.
4. Pay Your Debt on Time and Stay Away from Unnecessary Debt
Even with the best budget planning, you may find lingering debt that you have to get rid of. Getting out of past debts, especially if they’re a lot, takes a lot of discipline and self-control. You may have to drastically cut down your spending and look for better—or multiple—earning opportunities.
Once you’re debt-free, you also need to set up systems that prevent you from going into debt again. The simplest way to do so is to match your expenses with your income and stay ahead of your payments. Building a strong credit history is great but you have to make sure you don’t borrow more than you can afford to pay back.
Most financial advice and planning experts emphasize that your total monthly debt payments should not exceed 36% of your gross monthly income.
5. Save for Your Retirement
Retirement planning might feel ages away but in order to secure your future, you need to start saving for retirement as early as possible. Pension plans can be unstable depending on the company and scheme. Additionally, there is the unpredictability of social security, so, retirement planning is now more important than ever.
Many financial advisors are of the view that once you retire, you will need to replace your pre-retirement income by 75-80%. This means that if you make $60,000 the year before you retire, you should expect to have about $45,000-50,000 in income during retirement. Of course, this number can vary based on your health, lifestyle, and debts.
When you sign up for the plan, the money you save gets deposited into a savings account before it’s taxed and your tax-free savings keep growing until you withdraw the money at retirement. Many employers match your contribution of the savings to encourage more participation.
The other option is opening an Individual Retirement Account (IRA). Anyone can sign up for it regardless of where they work. This is especially for people who switch jobs often. It comes in various varieties such as a Traditional IRA (tax-deductible) and a Roth IRA (uses after-tax money).
6. Plan for Buying a House
Buying a house is something you should plan for in advance as it’s going to be a long-term investment. It’s also a good way to build your equity. You need to explore your down payment and mortgage options and start saving early.
When applying for a mortgage loan as a first time home buyer, your credit score will be really important in getting your application approved and also what terms and conditions you get the loan at.
Another rule of thumb for buying a house is that you should buy a house that should not cost more than 2.5-3 times your annual income. This can be a rough guide as to what you can afford for a mortgage to avoid becoming house-poor.
Think carefully before you take out a mortgage. Compare different mortgage rates, hire the right buyer’s agent, and use every chance of negotiation before you make a commitment.
7. Get the Right Insurance Plans
Getting insurance is one of the first things you should do when you enter adulthood. But if you’re still uninsured, you should apply for an insurance plan without wasting another day. Accidents and disasters can hit anytime leaving you in financial ruin.
Life insurance, health insurance, car insurance, etc. can really help in those scenarios. Consider bundling several policies with one insurance provider but only buy what you need. Don’t pay for extra coverage that you’ll probably never use.
Shop around before you consider buying a plan. It’s also important to review your insurance plan and needs on an annual basis.
8. Diversify Your Income Sources
Increasing your income and lowering your expenses lie at the heart of financial planning. To do the former, you need to look for side hustles and entrepreneurship opportunities as more and more people are no longer relying on a single source of income.
You’ve got to break the chain of working 9-5 to be able to have enough when you retire. You can see this list of ideas that can help you make some extra money on the side.
9. Set up an Emergency Fund
By creating an emergency fund, you set aside some money needed in the event of financial distress. This could be anything ranging from the loss of job to a debilitating illness.
No matter how well your job pays or how well you have budgeted for your expenses, any unforeseen situation can leave you in need of money.
Most experts recommend that your emergency fund should have money sufficient to cover essential expenses for at least 3-6 months. While it may not seem easy to save this much in a short time, you need to start now before you get trapped in a financial crisis.
10. Look for Investment Opportunities
A smart way to start building wealth is to invest money in the right places. Whether it’s stocks, real estate, or investment bonds, you need to start looking for good low-risk investment opportunities that are within your reach.
11. Getting Help from a Professional Financial Advisor
In your journey of managing personal finances, getting help from a professional financial advisor can go a long way! There’s a common misconception that working with a financial advisor can cost you a lot of money and you should be a few years away from retirement to do so but this is far from the truth.
Young professionals who hire financial advisors early on start taking control of their financial future. A financial advisor can educate and guide you to build better financial habits at the beginning of your career.
Significant events occur, both related to your personal and professional life, as you move through your career. A financial advisor can help you navigate through all these transitions, reducing your stress and formulating a well-calculated strategy every time.
In addition to this, financial advisors are linked to a strong professional network of mortgage brokers, real estate agents, insurance agents and more. This is why they will be able to connect you to the best resources that suit your needs. This way you will never have to worry about things like choosing the right investment plan or buying a house.
So, whether you’ve just started out your career or are already a few years into it, you should definitely consider hiring a financial advisor in order to make smart financial decisions and start building a strong foundation for your future.
Money management isn’t supposed to be as complicated as people make it seem. You just need to remember that taking small steps early in life can lead to big results and a more secure future.