April is the period of time recognized by the United States as a campaign for financial literacy and education. Started in 2004, the government decided that financial education was a top priority that wasn’t being properly taught to young Americans. In an effort to improve that, Financial Literacy month was officially adopted!
Now, let’s paint a picture. You’re a young professional in 2022 looking to save money and buy your financial freedom. Your expenses are skyrocketing, inflation is rampant, and you have mortgage or rent due reliably every month. “How will I ever retire?” may not even be the question on your mind. A more basic questions like “How will I afford to live next month?” occupies your thoughts. If you are like most Americans, a majority of your income comes from your primary
employment so even a whisper of a recession brings back memories of 2007-2009 where family, friends, or even you, lost your main source of income! Yikes!
First off, deep breaths! If you are in Gen Z or a millennial, then chances are you are better off than you think. 62% of Gen Z and Millennials report being “constantly stressed about money” and 70% feel they are “way behind their peers” in terms of financial stability. Yet the highest savings rates and the lowest debt ratios are from these generations.1 Having seen the global recession has instilled some very valuable disciplines in young professionals but also some deep-rooted anxiety.
Here are some tools that you can use to judge yourself honestly!
Do you have a budget? Are you sticking to it? A budget should give you a snapshot of all your income and all your expenses. If there is any money left over, try pointing that amount towards a financial goal like building your savings, emergency fund, or investments.
Do you have an emergency fund? If so, would it cover 4-6 months of expenses if you found yourself unemployed? If not, do you have at least $1,000 stashed somewhere that you could pull and replace quickly?
How much are you paying in debt? If less than 37.5% of your income going to paying off debt, then that’s a great place to start! If it is above that (or if you strongly dislike debt) develop a strategy to pay it down faster and earn back that portion of your income.
Do you have insurance to cover medical expenses or to protect your family in case something happens to you? If not, then talk to your benefits administrator at work to see what it would cost.
Hopefully, you went down this list and checked all these boxes as “yes” or “got that covered”. If not then use these points as a roadmap to help develop your financial health. Just like going to the gym, it takes time to build but even starting small and being consistent can pay off big! Still having trouble? Talk to a financial coach, they can help keep you on track to your financial goals!
You’ve passed the first test and now you are financially stable! Congratulations! Now you have a strong base that will let you look towards the future with confidence. Here is what you should be looking to next!
As a young professional time is on your side. Compounding returns will be a serious player in your long-term plans! Whether for retirement or for a major purchase, purchase investments that are pointed towards your goals.
Contribute to your 401(k) or 403(b). Automate it, invest it, and forget about it. That money is yours as long as you claim it!
Start contributing to an Individual retirement account (IRA). A traditional or Roth IRA are tax advantaged ways to put money aside for retirement.
Pay off remaining debt! When you can free up your income, so many new opportunities show themselves.
Plan for your child’s education. Help take the burden of student debt off them by planning in advance.
Still not satisfied? Then here are some bonus topics for you!
Try diversifying your income. The gig economy and side hustles are now a staple in many people’s lives. Some of these are hobbies that turn into a little spending money, others turn into careers. If you are unsatisfied with only one source of income, look at sites like Fiverr and Etsy to see if there might be a market for your skills. Or you might look into buying a rental or investment property, but don’t be fooled, being a land lord or fixing up a house isn’t ‘passive income’. It is hard work, maintenance, insurance, property taxes, wear and tear on the property, unstable tenants, etc. However there are companies to outsource this. Be aware of what all these sorts of investments entail.
If you are concerned about inflation and you have some spare cash flow, consider owning investments. Speak with your financial advisor to see what they believe might be most beneficial to you at your individual risk tolerance.
Finally, to really squeeze every ounce of tax advantages you can out of your accounts, here is some homework. Look into a ‘Back Door Roth’, a ‘Mega Back Door Roth’, and potentially ‘Life Insurance Retirement Plans’. These aren’t for everyone and they can be a hassle to manage on your own so be sure to seek out the advice of a qualified financial professional to address their cost and suitability. Each of the topics mentioned in this blog could have entire books written about them. In fact there are books written about them! Here are a few:
Financial literacy is one of those topics that is often overlooked in schools, in higher education, and at work. Unless its your job to look at the numbers you may not have even considered your budget, your cashflows, or your personal balance sheet. Worse yet, its often considered rude or improper to talk about money in social or even family settings. I hope this blog serves to point you in the right direction or get a conversation started at the dinner table about what financial literacy and stability means to you and your family.
Richard Widick is a Financial Planner and Wealth Strategist with Cultivate Wealth Management. He is a two-time Florida Southern graduate with his bachelor of science and master’s in business administration. He is a Lakeland native and is active in The Lakeland Rotary Club, EMERGE, and Bonnet Springs Park. Richard’s passion is to make financial education available to all who seek it. Richard also has a personal vendetta against taxes and enjoys helping people mitigate their own tax liability through proper planning. When not at work, Richard enjoys time with family and friends as well as making new meaningful connections in the local community.