Jumpstart Your Finances as a Young Professional in 2017
According to a 2014 Charles Schwab survey, the average American spends more time planning their next vacation and researching their next auto purchase than they do managing their personal finances.
And not all that unsurprisingly, it’s not even close.
Over half and nearly 40% of those polled spent over five hours researching their next auto purchase and vacation, respectively. Compare that to the measly 11% that said they spent an equal amount evaluating their finances and it’s clear that effectively managing our personal finances doesn’t sit high on the priorities list.
Unfortunately that lack of attention shows, as nearly 1 in 3 Americans has zero dollars saved for retirement. Yet for busy, young professionals the good news is that simple steps today can have a profound impact on your ability to meet your financial goals of the future. Which is why we’ve outlined four simple steps that can jumpstart your finances as a young professional heading into the New Year.
Increase Your Savings Rate
There is likely no single indicator of future financial success than the rate at which young professionals save. There are obviously a myriad of factors that impact one’s personal finances, however, for those familiar with the 80/20 rule—80% of the results are often derived from only 20% of the causes—the 20% that you want to focus on is how much, how consistently, and how long you can diligently continue to save. This will have a far more profound impact than your ability to create a sexy investment portfolio.
New Year’s Tip: Increase your savings rate by 2% in 2017. A simple rule of thumb and goal to shoot for is to save 10-20% of your pre-tax income for retirement. This is easier said than done with student loans and other obligations, but this should be a savings rate to shoot for.
Protect You and Your Family
A lot can change over the course of a year and as such it’s important to revisit your life insurance needs at the start of a new year to see if any major events have changed how much or how little life insurance you need. Did you have a new child? Change jobs? Move states? Inherit money? Get married or engaged? If you answered yes to any of these questions, now, is an appropriate time to revisit your life insurance needs.
New Year’s Tip: Generally speaking for young professionals, 10 times your income is a good starting point when trying to determine how much life insurance you need, however, keep in mind all kinds of factors can cause that number to be higher or lower, so use that only as a starting point. Check out Quotacy for free quotes!
Review Your Investments
A lot can change in a year, which is why the New Year can be a great time to revisit your investments to ensure they are still allocated appropriately given your goals, time horizon and comfort level (i.e. risk tolerance). If you’ve set up an asset allocation for your investments, start by comparing the current allocation to the original allocation to see if things have drifted by more than 3-5%. If they have, try resetting (“rebalancing”) things back to the original allocation you intended. If you haven’t put much focus into setting up an appropriate allocation look for a Target Date Fund (i.e. Fund Company Name 2050) which is an easy way to allocate things based on your age or send us a quick email and we can help take a look at things for free!
New Year’s Tip: Review your investment expenses, in addition to your asset allocation, to ensure that they are all at or below 1%. If they aren’t, find out why and if there are less expensive alternatives. One of the best predictors of future investment success is how low you can keep your investment costs.
Open a 529 Plan
If you have kids, would like to help pay for their college education, and haven’t yet opened up a 529 Plan yet, now is the time to start. The cost of college continues to skyrocket and there is a little relief in sight, making it all the more important that parents start early when it comes to saving for their child’s future education.
For a newborn in 2017, planning to attend a public in-state university, parents will need to save roughly $500/month for 18-consecutive years to be able to pay the full-cost of college tuition. The surest way to be able to afford that hefty price tag is to start early!
New Year’s Tip: Start today by opening up a quality 529 plan today and setting up automatic contributions. Life is too busy to remember to save each month, so by setting up automatic contribution, it’ll force you to save consistently. Lastly, find out if you live in a state that allows for deductible contributions on your state tax return if you contribute to the state 529 plan. If your state doesn’t, then simply look for the best 529 plan.
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Providing the perfect blend of powerful technology and human guidance, Lifewise is geared toward young professionals searching for a better way to make wise choices and sound financial decisions. Backed by BerganKDV Wealth Management, Lifewise is supported by a team of CPAs, CFPs and CFAs who stand ready to guide you through every financial challenge and windfall.Learn more