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Smart Financial Planning for Younger Professionals (I): Financial Goal-setting, Saving and Investing

Smart financial planning for younger professionals net worth header image

This is the first of a two-part blog series on building a strong financial foundation for younger, early-career professionals. The series covers topics such as understanding net worth, financial goal-setting, investing and saving, debt and tax planning.

By Reema Patel, CPA, CFP®

It’s never too early for young professionals to start planning for a sound financial future, and by reading these important financial considerations, you have already taken the first step.

Know Your Worth

In order to discuss growing your net worth, you first need to understand what net worth is. Net worth is your assets minus your liabilities. Your assets include your bank account, investments, retirement account, owned property, and your most important asset: yourself. Your liabilities are what you owe, and they can include student debt, credit card balances, your car loan, your mortgage, etc.

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As you start thinking about some of the strategies you can use to grow your net worth, either by increasing your assets and/or reducing your liabilities, you will want to be able to track your data and see how it changes over time. That way, you can use the information to adjust what you need so that you can reach your financial goals.

Understand Your Goals

Here is a general plan of attack for growing your net worth. Keep in mind, these steps can and do overlap, but this is a great guideline to use, especially if you’re not sure where to start:

  1. Create a budget, reduce expenses, and set realistic financial goals. It’s important to do some self-evaluation to understand your habits, your relationship with money, what motivates you, etc.
  2. Build a liquid emergency fund to cover around three to six months of your expenses.
  3. Take full advantage of employer-sponsored matching funds (i.e., for a retirement account).
  4. Pay down moderate and high interest debts.
  5. Build savings for retirement in an IRA and for higher education expenses.
  6. Save for other goals and advanced methods.

Some cornerstones to success are to live within your means and spend wisely. Don’t spend it if you don’t have it, and if you need to spend it, make sure you have a plan in place first.

Save and Invest

After you have saved the three-to-six-month emergency savings fund mentioned earlier, you may want to focus on maximizing your 401K/403b contributions, maximizing your traditional or Roth IRA contributions, and investing in brokerage or investment accounts. If you can’t maximize your 401K contributions initially, that’s okay. Start where you can and increase your contribution by a percentage or dollar amount each year

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Some other investment options include mutual funds, exchange traded funds, individual stocks and bonds, private equities, real estate, and physical assets. The most important thing to do is reduce your risk by diversifying and balancing your portfolio—don’t put all your eggs in one basket. Investing in three to five funds is generally enough to start out and be diversified. And if you are looking for more advice on investing, CBM offers a great quarterly market investment update.

Some final considerations for saving and investing include knowing your short, medium, and long-term goals, recognizing that liquidity versus risk is an inverse relationship, understanding that cash is king for emergencies, and being aware of different fee structures for advisors and planners to ensure they are operating in your best interest.

Contact Reema Patel with any questions via our online contact form.

“In part 2 of this series, we will investigate how to manage your debt, protect yourself and your family through insurance and estate planning considerations, and manage your tax planning decisions wisely.”

Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.