When young professionals begin their financial planning journey, prioritising the right aspects of financial planning is essential. Below are some key steps one should consider:
1. Create a budget and build an emergency Fund
Budgeting: Understand how much you earn and how much you spend, along with your financial commitments. This will help you see how much you can set aside for savings and investments.
Emergency Fund: Before investing, ensure you have a safety net. Aim to save at least 3-6 months’ worth of living expenses in a easily accessible account such as a money market.
2. Pay off high-interest debt
Prioritise paying off any high-interest debt, such as credit cards and/or personal loans. The interest on these types of debt are often higher than the returns from most investments, so reducing debt frees up cash flow for future investments.
3. Set clear financial goals
Identify short, medium and long-term financial goals, such as saving for a home, retirement, or education. These goals will help determine your investment strategy and risk tolerance.
4. Start with retirement savings
If your employer offers a retirement plan, start contributing early. Take advantage of any employer match—it’s essentially “free money.”
If you don’t have access to an employer retirement plan, consider opening a Retirement Annuity.
Both an employer retirement plan and an individual retirement plan will provide you with a tax deduction benefit and tax-free growth within the fund.
5. Start investing early
Time in the market is one of the biggest factors for growth. Even small amounts, invested early, can compound significantly over time. Speak to a professional who can help guide you along your journey.
Place your investments with an investment firm – consolidation often results in administrative fee discounts and take advantage of compound interest!
6. Diversify your investments
Spread your investments across different asset classes (shares, bonds, etc.) to reduce risk. As a young professional, you may have a higher risk tolerance, meaning a larger portion of your portfolio could be in equities, which tend to offer higher returns over the long term. There are various ways of diversifying your portfolio, we recommend discussing this with a trusted professional financial planner.
7. Guard your wealth
As you have a long working life ahead, you need to guard your wealth by way of insuring yourself against a catastrophe like disability or dread disease. You should also guard your health by way of ensuring you are on a good health/hospital plan.
8. Seek professional advice
If you feel overwhelmed, seeking advice from a professional financial planner can help you develop a solid, personalised investment plan. A great place to start is to ensure the planner you engage with is a CFP (Certified Financial Planner) as they are bound by strict professional codes of conduct and will provide you with advice which is in your best interest.
By focusing on these steps, young professionals can create a strong foundation for their financial future while managing risk and maximising growth opportunities.
Veritas has various articles and podcasts available; this topic has been discussed in both an article and podcast and can be found here:
https://veritaswealth.co.za/news/young-people-need-financial-advice-we-all-have-a-duty-to-ensure-they-get-it/
https://veritaswealth.co.za/news/podcast/young-people-need-good-financial-advice/
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