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Goals Based Financial Planning for Young Professionals


Many young professionals are under the impression that financial planning means planning for retirement and that only those who have saved a good deal of money can benefit from it. In reality, nothing could be farther from the truth. Financial planning is useful throughout all stages in life. Beginning to plan early can save countless headaches and help young professionals to begin building wealth at an earlier age. Young professionals face unique financial challenges which can be addressed through proper planning such as finding the most efficient way to pay down student loans while still saving for retirement, planning for the purchase of a first home, saving for a child’s education, or deciding on the amount and type of insurance coverage needed. These challenges are different than the challenges faced by someone fast approaching retirement and require a different approach in order to solve in the most efficient way possible.

One of the biggest worries of young professionals is their inability to allocate funds to each type of savings account they feel they need. After paying student loan minimums and other required living expenses, money can be tight. Decisions have to be made and priorities agreed upon when it comes to the most efficient manner in which to use limited funds. A financial planner can go through the options and help to find what will benefit the client the most in the long term. Sometimes it’s best to pay down student loans quickly in order to gain the peace of mind. Other times it’s better to pay the bare minimum on the loan while funding a taxable savings account with the intention of paying the loan off early using the proceeds from the account. As with most of life’s situations, it ends up being best to take the middle course. In this case that would be paying an amount above the minimum while still retaining the ability to save extra in an investment account. The point is that going through these options with a financial planner gives peace of mind and creates an actionable plan to follow in the future.

Young families have many unique issues as well. The cost of college is growing much faster than the rate of inflation; double digit gains in the cost of tuition are common. Planning ahead and relying on the power of compound interest, along with tax advantaged savings plans can make college much more affordable years down the road. Compound interest allows a relatively small, $100 per month, investment to grow to nearly $40,000 in 15 years. If a 529 plan is used that money will be tax-free when spent on qualified educational expenses such as books or tuition. Another type of 529 plan allows parents to lock in current tuition rates at participating state schools, despite their children being over a decade away from college. This can save tens of thousands of dollars.

A final issue for families is their need for insurance. Few people have the coverage they truly need, particularly young families with small children. While no one wants to consider the possibility of death, even worse is the possibility of surviving family members having a diminished quality of life due to poor planning. The bright side to this is that term life insurance is cheaper than it’s ever been. A good rule of thumb is that everyone should have 3-5 times their annual earnings in coverage, however this isn’t a hard and fast rule. A better option is to meet with a financial planner who can then work to identify specific needs and who can tailor a policy to meet those needs. A man or woman who is married with small children will have different insurance needs than someone who is single and a planner can work with a client in order to find the best possible solution. A good planner will also have the ability to shop around for policies in order to get the best value for one’s needs.

A good financial planner will work hand in hand with clients in order to create a plan which addresses their clients’ specific needs. A financial plan is not a one size fits all document, rather it’s a living and breathing document that has to be updated on a regular basis in order to keep it relevant. Working with a knowledgeable planner will help a client to both chart out the path to financial freedom and to understand the why behind each choice along that path.

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