Life comes at you fast. The decisions you make between ages 25 and 35 will perhaps have the most significant impact on your success later in life – especially financially.
Every day you make hundreds, if not thousands, of decisions. Most are small and insignificant. Others have a much more lasting impact on your life. Many of the most important decisions are those that affect your financial affairs.
Should you go to graduate school? What career path should you pursue? Can you travel the world, or should you start working? Do you want to get married - and to whom? Should you have kids? Buy a house? Start an investment program? What does “asset allocation” really mean? What the heck is a 401(k)? Do you need disability and life insurance? Do you need an estate plan already?
This list could go on for pages. Too many young professionals either avoid these decisions entirely, or make the wrong decisions because they lack good information or professional help.
It is easy to become overwhelmed, and knowing where to look for help isn’t always straightforward. Financial advisers, attorneys and accountants, who together make up the bulk of the financial planning industry, often ignore the young professional demographic, creating the false sense that financial planning is only for those who are already established in their lives and careers. Worse, many young professionals simply don’t understand the importance of the decisions they make (or fail to make) at such an early point in their lives.
Young professionals should not settle for being left out. Waiting until you consider yourself “established” will hamper your long-term success. An early start on a financial plan, including forming a long-term relationship with a trusted adviser, may be the most important decision a young professional can make. Becoming proactive is key.
Building wealth is a process, and it generally starts with the most fundamental of investments - education. Education and hard work are the foundations of a successful career, which leads to the ability to build wealth via financial investments and sound financial planning.
After college, though, educational choices and financial ones are more self-evidently intertwined. For some, paying off student loan debt as quickly as possible is an important financial goal. Other young professionals will consider whether graduate school or a professional degree is worth the cost and time required. For those who choose to go right into the work force, an entirely new array of financial choices appears, demanding attention.
Financial planning is not a one-time event. It is the process of meeting your life goals through the proper management of your finances. Such a process should ideally give direction and meaning to your financial decisions, and allow you to understand how each decision affects all areas of your financial life. The earlier you begin this process, the better.
Though everyone’s situation differs, there are some basic topics all young professionals should consider when creating a financial plan, whether on your own or with an adviser. Setting long-term goals is crucial, and something only you can ultimately determine; even the most skilled financial planner needs to know what you want before helping you to achieve it.
While it’s easy to get caught up in the day to day experience of your finances, building wealth is a long-term endeavor. Many young people know in the abstract that saving for retirement is most effective when it begins early. But they don’t always find it clear how to take advantage of the time to create the most comfortable nest egg possible. Similarly, though estate planning may seem morbidly premature to a professional in his or her late 20s, it’s important to lay groundwork early for more complicated planning that might follow.
It’s also essential to know what sorts of planning cannot or should not be done without help; drawing up a will without a lawyer is unlikely to result in a legal, effective document that anticipates and addresses the issues that are likely to arise in a young professional’s life. Similarly, selecting investments without proper due diligence usually leads to poor investment results.
Insurance is another topic that many young professionals might prefer to sweep under the rug. But stopping at car and home or renter’s insurance is often a mistake. For those with a dependent spouse or young children, term life insurance is often smart. And for young professionals, with or without families, disability insurance covers an even more likely risk. Selecting the best coverage can be complicated, and is something that requires research, thought and, often, outside advice.
Many young professionals are also engaged or newlywed. Delaying discussions about finances can put a young marriage in serious jeopardy. Candor is essential, but it’s not always easy to stay calm and impartial during conversations about money. Selecting a financial adviser, or introducing your partner to one you already have, can be an excellent way to bring up these topics without putting either spouse on the defensive.
For same-sex couples, married or otherwise, it is all the more important to employ careful financial and legal planning to secure your rights and to meet your financial goals. Couples should consider executing a power of attorney, employ extra care in estate planning, and exercise caution in filing taxes properly. A financial adviser or attorney can help smooth many of the tangles couples face.
Should you decide a financial adviser is a good investment, it can still be hard to determine what sort of value a given financial adviser offers. Though it can seem daunting at first, it’s important to do proper research on the individuals or companies under consideration. If you don’t know what a credential means, or how it’s earned, look it up or ask an impartial party who can better evaluate it.
It’s also important to understand the way in which an adviser is compensated. Some advisers work on commission, which can lead to conflicts of interest. Many people prefer a fee-only adviser who accepts the responsibility of a fiduciary to put the client’s interests first. Whether commission or fee-based, however, advisers should be very clear as to who compensates them and how. As when choosing a doctor or a mechanic, what’s most important is establishing a basis for trust, and finding a professional who is honest with you. Caution is appropriate, though there’s no need for paranoia.
When looking for help, it may be most beneficial to seek a comprehensive, independent adviser. Financial advice that considers all the issues confronting individuals (and their families, if they have them) will be the most effective. It is useful to address investment, tax, accounting, estate planning, insurance, business management, retirement and philanthropic considerations, among others, together rather than in isolation.
When selecting an adviser, you should also consider what sorts of topics they might help with in 10 or 20 years, as well as in the present. Financial planning works best as a long-term relationship. The longer you remain with the same adviser, the more you build trust and establish a relationship that will grow in depth and scope over time.
The process may start with simple annual meetings to discuss major issues in your financial affairs. It may also include a few one-time engagements, such as the implementation of an investment strategy, retirement planning or college savings programs, or an insurance needs analysis. As you advance in your career, a good financial adviser can provide additional services and address new issues as they arise, with the knowledge and client-specific history necessary to deliver the best advice possible.
Young professionals should take the initiative to seek out a financial adviser. Whether the search simply starts a discussion or eventually leads to a long-term business relationship, what’s important is that you consider the financial choices you face and avoid the temptation to ignore the difficult ones. Talking to an adviser early in life can be the most important decision you will ever make.