As a young professional, especially in a variable compensation role such as sales or inside sales, there are strategies that you can employ to achieve your short-, medium-, and long-term financial goals. Try these 10 simple action items that can accelerate your progress toward your financial goals!
1 – Write Down Your Objectives
Think about the life you want to have, not just the things you want to own. It’s okay to dream big – just make sure your goals are realistic and achievable. Make a list of what you want to accomplish, and remember having several small goals can help keep you on pace and motivated to achieve your long-term goals.
2 – Analyze your Cash Flow
List all of your income sources (salary, commissions, and bonuses) and subtract all of your fixed expenditures (living expenses, debt payments, taxes, insurance, etc.) from your income. Hopefully, you’re left with a surplus. Set a goal to save a specific percentage of your surplus such as 30% to 70%. An excellent habit is “save first, spend second.” Every time you receive a paycheck, achieve your savings goals, and only spend what’s left over.
For example, for sales professionals who have a small salary and the potential to earn large bonuses and/or commissions, developing a more conservative cash flow analysis can help; base your calculations off of your average monthly income, not your income potential.
3 – Identify your Priorities & Develop your Plan
Split your financial planning goals into three categories:
- Short-term goals – liquidity is important to have quick access to your assets.
- Medium-term goals – this might include saving for a house, children’s education, or non-retirement goals.
- Long-term goals (defined by your expected retirement age) – liquidity is not important, and avoid withdrawing or borrowing from your retirement accounts prior to retirement.
4 -Purchase Disability Income Insurance
You have large assets – your car, your house, your retirement savings – but it’s your ability to earn an income that is one of your biggest assets. Purchasing disability income insurance while you’re young and healthy keeps premiums as affordable as possible. Many policies allow you to increase your benefits as your income increases, and the insurance benefits can help you maintain your lifestyle if you lose the ability to earn an income.
5 – Make Savings a Habit
No one complains about having too much in savings, but many complain that they don’t have enough. Payroll deduction and automatic transfers to savings are easy ways to put your savings on autopilot. It’s also important to establish an emergency reserve fund. A good target is having enough savings to maintain your lifestyle for three to six months.
6 – Participate in your Employer Sponsored Retirement Plan
Even if your employer’s retirement plan doesn’t offer a match, you should still contribute to the plan. Most young professionals will not have a pension. Social Security may not be enough to maintain your lifestyle during retirement. If you don’t save for retirement, no one is going to do it for you. An easy way to get started is to enroll in an automatic increase program and increase your deferral percentage annually to get to your desired percentage.
7 – Choose Appropriate Investment Allocations
Complete a risk tolerance questionnaire, and then choose a diversified asset allocation according to your risk tolerance and time horizon. Don’t worry about how your friends or family invest. You are the only one who knows how much market volatility you can handle. Asset allocation and diversification do not ensure a profit or protect against a loss.
8 – Be Careful with Debt
Be careful to consider how much of your take-home pay is being used to pay debt. If you have consumer debt, the loan with the highest interest rate is the loan you should pay off first. Understand the difference between “good debt” and “bad debt”. An example of a “good debt” would be a mortgage, while “bad debt” could be credit card debt.
9 – Don’t Overspend on Cars
Calculate how much you can afford to spend per month on car payments without compromising your other financial goals. Factor in the interest rates for auto loans and the duration of monthly payments when determining the amount that you can afford to finance.
10 – Find a Financial Professional to work with
Many young professionals are busy or not sure how to get started. That’s where a qualified financial professional can help you develop, implement, and monitor your plan, keeping you on track to meet the financial goals you set for yourself.