New Years Goals for Young Professionals
Is it really worth sacrificing the rest of your life because you lived too high on the hog in your young years? As much as I love that Nickelback song RockStar and see so many Young Professionals living with similar excessive tendencies, many more people have found greater financial success by exercising fiscal discipline, especially in younger years. And what better time to evaluate priorities than a New Year!
For those of you interested - here's a great excerpt from the Nickleback song: I want a brand new house on an episode of Cribs and a bathroom I can play baseball in and a king size tub big enoughf or ten plus me(So what tell me what you need?). I'll need a credit card that's got no limit and a big black jet with a bedroom in it. Gonna join the mile high club at thirty-seven thousand feet. [Chorus:] 'Cause we all just wanna be big rockstars and live in hilltop houses, driving fifteen cars. The girls come easy and the drugs come cheap. We'll all stay skinny 'cause we just won't eat. And we'll hang out in the coolest bars...Every good gold digger's gonna wind up there. Every Playboy bunny with her bleach blond hair. Hey hey I wanna be a rockstar.
It's hard to get past materialism. My comments will focus toward Young Professionals in this column because the habits they develop today can profoundly change their tomorrow. If you are or know a young person with potential, be sure to forward these New Years Financial Resolution ideas.
1. Only buy it if you can afford it. Society encourages big spending. We are taught that our lifestyle must include the latest cell phone, IPod, MP3, or electronic gadget - - or driving a new $40,000 car, spending all we want on vacations, parties, entertainment, and eating out. What ever happened to waiting to buy it until you can afford it? A typical 20-something cannot live like a typical 40-something or like a 20-something Britney Spears. Math doesn?t lie. You can either live the life of the rich and famous that Nickelback asserts and increase your chances of eventual self-destruction OR exert some discipline, start a savings program, and have piles of money later on. The richer you want to be, the more savings minded you need to while you are young. Forget what your friends buy or what your boss drives. If you go by the rule to buy only what you can afford, you will likely have much more for a longer period in the end.
2. Evaluate any debt you have or might incur in the next few years. Credit cards are not evil but they do become a problem if you cannot pay off your balance each month. Avoid high interest credit cards at all costs. On the flip side, low interest debt (like a mortgage) can be quite useful. Some financial experts suggest paying cash for everything because all debt is bad. While this is a good theory and keeps people out of trouble, I would encourage Young Professionals to look deeper at their debt picture. For instance, if you purchase a home at an interest rate of 6% but after the tax break you only are paying 4%, why make a large down payment at purchase or make double house payments? Either could be invested. If you could make 10% on that money and only pay 4% on the mortgage, it seems to me you are pocketing 6%. The catch is you can?t consistently make 10% without some risk.
3. Add a savings for future consumption account to your monthly budget. This savings fund is a liquid account designed to pay big-ticket or non-monthly items instead of having to go into debt or running short on cash when these big bills come up. The first step to establishing such a fund is to determine how much is spent on non-recurring monthly items like vacations, home repair (or home fund), car repair, or medical costs. Quicken has a great program to track all your expenses and really get a handle on where each dollar actually goes. Once you see your non-monthly expenses, go ahead and deduct the amounts you will eventually spend on these type of items and move that amount to a savings account. When it comes time to spend, you?ll have the funds.
4. Save money in your 401K or similar retirement plan as soon as you can and raise the amount you save every year. Contribute at least as much to any employer plan that they match ? it is free money! Consider implementing a Roth IRA, which will give you tax free money on the back end, which counterbalances a good bit of the taxes you will pay in retirement from those employer pre-tax retirement plans. Not only do you get the long term tax benefits, this gets you saving more and more on a monthly basis. Make a goal to invest a certain percentage of any bonuses or salary changes as well.
5. Determine what financial things you want short and long term and re-look at your savings plan. Perhaps instead of saving all money to a 401K or to a house fund, you might do a little of both. I hate to see people save all their money toward a home purchase, when that little extra savings only compounded over the few years until purchase doesn?t substantially reduce the monthly payment. Whereas investing the same into a retirement fund that compounds for 30 years makes a much larger difference down the road. Think about making financial progress in 3 different areas: short term (today?s expected and the unexpected stuff), medium term (what you want in 5-10 years) and long term (retirement) - - and balance them all.
If you are dedicated and disciplined to save now, you have a much better chance of attaining and sustaining that richer lifestyle later.
1. Only buy it if you can afford it. Society encourages big spending. We are taught that our lifestyle must include the latest cell phone, IPod, MP3, or electronic gadget - - or driving a new $40,000 car, spending all we want on vacations, parties, entertainment, and eating out. What ever happened to waiting to buy it until you can afford it? A typical 20-something cannot live like a typical 40-something or like a 20-something Britney Spears. Math doesn?t lie. You can either live the life of the rich and famous that Nickelback asserts and increase your chances of eventual self-destruction OR exert some discipline, start a savings program, and have piles of money later on. The richer you want to be, the more savings minded you need to while you are young. Forget what your friends buy or what your boss drives. If you go by the rule to buy only what you can afford, you will likely have much more for a longer period in the end.
2. Evaluate any debt you have or might incur in the next few years. Credit cards are not evil but they do become a problem if you cannot pay off your balance each month. Avoid high interest credit cards at all costs. On the flip side, low interest debt (like a mortgage) can be quite useful. Some financial experts suggest paying cash for everything because all debt is bad. While this is a good theory and keeps people out of trouble, I would encourage Young Professionals to look deeper at their debt picture. For instance, if you purchase a home at an interest rate of 6% but after the tax break you only are paying 4%, why make a large down payment at purchase or make double house payments? Either could be invested. If you could make 10% on that money and only pay 4% on the mortgage, it seems to me you are pocketing 6%. The catch is you can?t consistently make 10% without some risk.
3. Add a savings for future consumption account to your monthly budget. This savings fund is a liquid account designed to pay big-ticket or non-monthly items instead of having to go into debt or running short on cash when these big bills come up. The first step to establishing such a fund is to determine how much is spent on non-recurring monthly items like vacations, home repair (or home fund), car repair, or medical costs. Quicken has a great program to track all your expenses and really get a handle on where each dollar actually goes. Once you see your non-monthly expenses, go ahead and deduct the amounts you will eventually spend on these type of items and move that amount to a savings account. When it comes time to spend, you?ll have the funds.
4. Save money in your 401K or similar retirement plan as soon as you can and raise the amount you save every year. Contribute at least as much to any employer plan that they match ? it is free money! Consider implementing a Roth IRA, which will give you tax free money on the back end, which counterbalances a good bit of the taxes you will pay in retirement from those employer pre-tax retirement plans. Not only do you get the long term tax benefits, this gets you saving more and more on a monthly basis. Make a goal to invest a certain percentage of any bonuses or salary changes as well.
5. Determine what financial things you want short and long term and re-look at your savings plan. Perhaps instead of saving all money to a 401K or to a house fund, you might do a little of both. I hate to see people save all their money toward a home purchase, when that little extra savings only compounded over the few years until purchase doesn?t substantially reduce the monthly payment. Whereas investing the same into a retirement fund that compounds for 30 years makes a much larger difference down the road. Think about making financial progress in 3 different areas: short term (today?s expected and the unexpected stuff), medium term (what you want in 5-10 years) and long term (retirement) - - and balance them all.
If you are dedicated and disciplined to save now, you have a much better chance of attaining and sustaining that richer lifestyle later.
posted by Shari Burnum @ 2:18 PM
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