In the first few years of your career, creating a spending plan may feel like a foreign concept. Honestly, who wants to think about things like wealth planning when you’ve just started to make “real” money now you don’t have to live like a college student? What was the point of all those years of going to school if not to land a good job, earn money, and spend it in any manner you wish? The biggest stigma is that once you start throwing around topics like financial planning is that it set in stone—namely no more fun lifestyle and that’s just how you have to live going forward. Not true at all! However, it IS important to have goals on saving and spending. So start this habit as soon as possible. Millennials (born between 1981 and 1999) are well accustomed to change and at the offset may not think they need a financial plan.
Meet the HENRYs (Not to be mistaken for Mr. Henry’s on Capitol Hill) Here in the Washington, DC/Baltimore region, there are a ton of young professionals earning nice salaries, and just starting to be able to really amass wealth. In the financial planning world, we use the fun acronym for this group—they are affectionately known as HENRYs (High Earner Not Rich Yet). They may be young attorneys, doctors, consultants, or lobbyists earning nice six-figure salaries – but they also have considerable debt from school, credit cards, etc., all while leading fun lifestyles and seeking to start families (buy a home, car, have kids etc.) Many in this group may initially think financial advisors or financial plans aren’t really for them—at least not at this point (mostly because they have the notion that financial advisors only handle folks with investable assets). While true that investable assets are important—it is equally invaluable to start a relationship with a financial planner at an early age and receive help with foundational planning (that includes spending/budgeting goals, 401(k) reviews, planning for future milestones such as a home purchase). Once you do have investable assets, you already know who you can turn to for trusted advice and help managing them. Real talk though—life is going to change—and what’s important to a high earner in their mid-20s is going to be very different in their 30s, 40s, and even 50s. But if you start early with a PLAN – you will be making the most out of the time you have today. And I can’t say this enough—use this time wisely! When first putting pen to paper, young professionals should think of a financial plan as a cushion, rather than a rigid framework for finances. For example, it might be a way to enable you to take a trip to Europe or Thailand while saving for the business you're hoping to launch. A wealth plan should be malleable, though there are elements that need to be in place to make it effective. I break a plan down into four areas: an emergency fund (at least 3 months of savings), debt management, future savings, and expenses. Here are four tips for getting started:
1. Get rid of your debt
This is the most obvious. Millennials carry $1 trillion in debt, but guess what? You would probably not guess that it is not from to home ownership or credit cards. It’s mostly student loan debt! For the 2018-2019 academic year, the average undergrad tuition for a private school is above 50K! Add in the cost of graduate school and it just goes up from there. For some, it takes a while to pay off all their student debt which is delaying a lot of good things like buying a home, or just being able to invest outside of retirement accounts, and really just save at the rate older generations were able to save at. It’s not a crazy idea to be focused on debt repayment but also be saving little by little. Sure the initial focus will be on the debt, but no reason you can’t do a little of both. As your salary continues to increase, the focus can shift or happen at a higher rate.
2. Save for the future (both near and far)
You need short- and long-term goals – they are both important! It's really important to have long-term goals...something you can think about and look forward to down the road. Having goals helps to clarify some of the abstractions that come with saving for major financial milestones, such as buying your first car, purchasing a home, getting married, having a child and ultimately retiring. 401(k) retirement plans and Roth IRAs are a prime example of how savings can grow. Here you have the ability to set it and forget it – generally speaking (as in don’t look at it every day). Every so often, take a look and be amazing at the growth over time.
3. Manage your expenses (budgeting)
A good portion of Americans don’t properly manage their money. Having a sound money management plan can be the light at the end of the tunnel for people trying to get their financial life in order. Knowing where you stand is the first step in this. You may have several bank accounts, credit cards, an IRA, 401(k), etc. but often times getting a grip (and having the time) to fully understand your personal finance state might seem daunting and an uphill struggle. (Hint: I’m here to help). It can seem like you are swimming against the current if you aren’t properly managing your finances. Managing your money—like anything important—takes time to understand and to improve on. And to master, it also takes commitment and a solid understanding of your financial situation. Everyone and anyone who ever took control of their finances went through this; and getting your financial life in order, sooner rather than later, is of utmost importance.
4. Review your plan
As your wealth evolves, revisit your plan at least annually to keep pace with changing priorities and life's milestones. You also want to make sure you're saving for the right things. Remember this: It’s your money—you have earned the ability to live where you want, buy nice clothes, travel where you want, a regular for brunch at Le Dip or dinner at RPM, a gym membership at Equinox, and/or attendance at as many Orangetheory/SoulCycle classes as you want. You can still have fun and enjoy any of these activities (in moderation) and still be amassing wealth. You just need a solid plan that will enable you to live your life, not impede it. I’m here to help you plan sooner rather than later – so let’s get in touch today.