This article is aimed at the rising population of young professionals, educating them with proven financial planning tips. While it’s easy to get excited about earning money, there are some things you need to know about saving and spending your hard-earned dollars wisely. If you’re in your twenties or early thirties, there’s still a lot of time to develop good money habits that will benefit you for years.
What is Financial Planning?
Financial planning is managing your financial resources to systematically meet your desired goals and objectives. It involves setting short-term, medium-term, and long-term goals, determining how much you need to save for them, deciding on the appropriate investment vehicles to meet them, and keeping track of your progress.
Financial Planning involves several different elements, including:
Investment planning: How much money you need to save for retirement, college tuition, or other purposes.
Budgeting: How much money you have coming in (your income) and going out (expenses).
Taxes: Tax planning is understanding how taxes work and how best to manage your tax situation.
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Why Is Financial Planning Important?
Here are five reasons why financial planning is essential for your future:
1. You Can Save Money for Emergencies
Financial planning is an important step to take if you want to save money for emergencies. You can set aside money each month and invest it so that you have enough money to cover it when something goes wrong. This can be anything from a car repair, to a major medical procedure, or even having enough money to pay your rent or mortgage if you were to lose your job.
2. You Can Set Goals for Retirement/Education/Buying a Home
Financial planning will help you set goals for yourself and help you achieve them over time. It will also help you stay on track to achieving these goals, so that you don’t deviate from them and end up wasting your hard-earned money on things that are not important. For example, suppose your goal is to buy a house before retirement.
In that case, financial planning will ensure that you save enough money during your working years so that by the time you retire, you will have enough savings to buy the house of your dreams, without taking out any loans or mortgages. Financial planning also helps with setting up educational funds for children and ensuring enough money is available for retirement.
3. It Will Help You Manage Debt Better
A good financial plan will help you understand your debt and how long it will take to pay off each loan. This information can help you plan for the future so that you aren’t surprised by unexpected expenses that could lead to more debt.
4. It Can Improve Your Credit Score
Your credit score is an important part of financial planning because it helps lenders determine whether or not they want to lend money to you. Lenders who see you have a low credit score may be less likely to offer you loans at competitive rates, or without high fees. By creating a budget and sticking to it, you’ll be able to improve your credit score over time and manage any existing debt more efficiently than before.
5. It Will Help You Make Better Decisions
Financial planning helps people make better financial decisions because it gives them the information they need to make educated choices about their money. When people know what they have and where it comes from, they can make informed decisions about how they spend it and where they invest it. This leads to better outcomes in terms of savings, spending habits, and investments overall.
7 Financial Planning Tips for People Under 30
The big 30 is a milestone that can be both exciting and scary. On the one hand, you’re getting older and more mature — but on the other, it can feel like you haven’t even started your life yet.
Retirement may seem out of reach if you’re in your early 20s or younger, but it doesn’t have to be! The key is to start saving as soon as possible, so that by the time you reach retirement age, you’ll have enough money to retire.
To help get your finances on track, we’ve put together these eight tips for financial planning for people under 30:
1. Start Saving Early and Often
Find a savings account with an easy-access online platform, so you can make deposits anytime without worrying about trips to the bank, or carrying cash around all day. If you don’t have enough money to open a checking account, use an app such as Acorns or Stash, that will round up your purchases and automatically deposit the extra change into your savings account.
2. Don’t Stay in Debt for Too Long
One of the most important financial planning tips is to repay your student loans as quickly as possible. Paying just the minimum amount on your loan each month will take years to pay off and cost more in interest than if you make larger payments from the beginning. If you can’t afford to make larger payments, it might be time to consider refinancing your student loans or consolidating them into one loan with a lower interest rate.
3. Avoid Investing Too Much in Your Employer’s Stock
A company stock option is a valuable employee benefit, but it comes with significant risks that should be carefully considered before accepting it as part of your compensation package. If the company fails, so does its stock price—yours. And unlike other stocks, there is no liquidity when it comes time to sell your shares, because they’re restricted by federal law from being sold until some period after vesting has occurred (usually six months).
4. Understand the Difference Between Needs and Wants
This is one of the most crucial yet overlooked financial planning tips. Everyone wants, but it’s important to understand your needs before purchasing. This is especially true if you’re on a budget or trying to save up for something specific, like a down payment on a house, car, or retirement fund.
5. Make Sure You Have an Emergency Fund
An emergency fund is one of the most important things you can have as an independent adult. It’s also one of the first things people who are fresh out of college should start working toward, to build up their savings for retirement with an IRA or 401k plan, or other investment vehicles, even if it means putting off buying things like expensive electronics or other luxuries.
6. Don’t Forget About Life Insurance
Life insurance is another thing that many young people don’t think about until later in life, when they start having kids or have other dependents to support. But if you’re single, it’s important to have specific life insurance policies in place so your family won’t be left without financial security if something happens to you unexpectedly. There are many different types of policies; make sure you’re familiar with them and know what type is right for you and your family’s needs before making any decisions around purchasing a policy.
7. Get a Credit Report
To finalize these financial planning tips, one of the best pieces of advice is to take advantage of free credit reports from annualcreditreport.com and check for errors or potential identity theft. This can help you avoid trouble later on down the road and protect your good credit score.
Don’t forget to hit Financial Planning Tips For People Under 30 | Financial Planning – Ron Malhotra video.
Final Thoughts
The key takeaway from this article is that it’s never too soon (or too late!) to begin saving for your financial future. Best of all, you don’t need to be earning massive amounts of money to start saving either. Begin looking into ways that you can cut back on unnecessary spending and start saving today. Trust me, the sooner you get started, the more rewarding it will be when you finally reach retirement age. Did we miss any helpful financial planning tips & future wealth preparation for people under 30? Feel free to share these with us through the comment section below; our readers would love to hear your thoughts.
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