To all the young professionals out there reading this, we want you to know that we get it. The struggle is real when it comes to managing your finances and balancing the rest of life’s curveballs successfully. We tend to see a lot of our clients making some simple mistakes that can be easily prevented with a little intentional planning.
Here are 9 of the most common mistakes we see young professionals make with their money:
1. Getting too cozy with debt
Credit cards, student loans, car loans, mortgages, etc.: it’s nearly impossible to start your career debt free without the help of Mom and Dad. Don’t allow yourself to get comfortable with the idea of borrowing money that you do not have. Student loans and a manageable mortgage are one thing, credit cards and expensive car loans are another.
2. Fear of the word “budget”
Most young professionals cringe at the thought of budgeting. In our experience advising younger clients, dedicated budgeting is the number one difference maker in the success or failure of a financial plan. If you aren’t keeping score of the game, how can you determine the winner?
3. Lack of emergency fund
We like to refer to this as the “Oh Sh!t Fund”: sh!t is going to happen that you haven’t planned for, it’s inevitable. We recommend having 3-6 months’ expenses saved for emergencies like losing your job, car repairs, etc. The last thing we want is for you to be forced to pull out the credit card in these scenarios.
4. Student Loans
Student loans have become more complicated than social security. If you haven’t consulted a financial advisor or student loan specialist regarding your student loans, I guarantee you are losing money.
5. Making decisions based on emotions
We are all victims of this in some fashion whether we are children, millennials, or baby boomers. In our 20’s and 30’s, every decision feels like it could make or break us. Often, we make decisions based solely on the way we feel at the time and neglect to exercise patience and logic – especially with money. Rule of thumb: wait seven days before buying anything that costs more than one week’s pay. Simply removing yourself from the situation and taking time to think about your purchases will be a game changer.
6. Skipping the employer match
Did you know that most employers offer you free money? Crazy, right? Make sure you are taking advantage of your 401(k) match at work. We see employers offering to match employee contributions up to 10%+ in some cases. More commonly we see a 3-7% employer match offered but hey, free money is free money. Don’t miss out on this one.
7. Giving the IRS unnecessary love
Be sure to think carefully and consult a professional on the differences between Traditional and Roth retirement accounts. The tax treatment of these types of savings vehicles are very different. Choosing the wrong one can play a major factor in your tax situation now and down the road.
8. Forgetting to plan for the 30+ years between now and retirement
Everyone hears terms like 401(k) and IRA all the time right out of school, and most of us are utilizing at least one of them. However, many young professionals don’t realize that accounts such as 401(k)’s and IRA’s are untouchable until age 59 1/2 (without incurring heavy penalties). Newsflash folks, a lot is going to happen between now and age 60! We need to be planning for weddings, children, home down payments, etc. before they happen.
9. Not asking for help
Everyone needs help in some way or another with their finances. I work with clients on their financial planning on a daily basis, and I still learn something new every day. If this stuff was easy, I wouldn’t have a job. Think about it this way: If you were sick, would you put off seeing a doctor until you felt better? Probably not. Doctors diagnose and prescribe remedies that help patients get better – that’s why we need them. Isn’t working with a financial advisor the same thing?