As a young adult, financial anxiety should just be expected. Whether you are inching towards college graduation, freshly graduated, or even in your first or second full-time job, money may be tight for a while, and there is nothing wrong with that. We are living in a world full of people trying to keep up with the person beside them, and that just isn’t realistic. Each person is different, each story is unique, and remember, you have your own journey.
One of the best things a young professional can do for themselves when entering the workforce is to know your cash flow. Take the time to sit down and lay out all of your expenses. This may include rent, utilities, gas for your vehicle, food, WiFi, student loans, car loans, credit card debt, and don’t forget to budget some money in there to have fun. I believe that setting financial goals for yourself is as critical as setting personal or professional goals. Setting these goals will help you envision your path to financial success. Setting large goals, years down the road, can be tough. Try to break them up into monthly, quarterly, six-month, and end of year goals. Having these goals prioritized will help you remember what is important to be spending money on today, and what is a current want for the future.
A large misconception for young professionals is that you are doing enough for retirement saving if you are contributing to your employer’s retirement plan. Although that is great, and you should be putting about ten percent in there, you can still do more. Add a monthly “expense” into your budget to put aside for investing. If you don’t have a chunk of change to get started in the markets, utilize your savings account to simulate adding money into your investment account every month until you have the amount of cash that you are comfortable with for an initial investment. Typically, you can get great exposure to the market with about $2,500-$10,000. At that point, you can direct your contribution away from your savings account and toward an investment account. The process could take a couple of months, or longer, to reach this point but don’t get discouraged. Keep utilizing this tool for growth and keep using that monthly contribution. In the finance world we call this dollar cost averaging. If you have a retirement plan through your employer, you are already using dollar cost averaging. Dollar cost averaging takes timing the market out of the equation and can be used to take the stress out of investing, since you don’t need to worry about the swings of the market. The reality is that we as young people can afford the risk and volatility of the markets, because we have time on our side. In fact, I would argue down markets can be a very good thing for young professionals. If you can remove the “fear sell/greed buy” mentality, you have a great opportunity to capitalize on a down market. I personally like to think of it as everything being on sale.
The absolute worst thing you can do as a young professional entering the investing world is to try and time the market. Nobody can read the future, and nobody truly knows what the market will look like tomorrow, three months from now, or even two years from now. But what we do know is that if you make a plan for yourself, and you stick to it, that can help you come out ahead. Disregard all the noise about day trading and about trying to get into the market at the perfect time, because that is incredibly difficult to do, and you won’t have a lot of success.
Lastly, don’t forget to live inside your means. Don’t try to outspend your budget just to keep up with your friends, family, or favorite influencers. The fastest way to find yourself in financial trouble is to spend more than you are bringing in. Drive that car for as long as you can, don’t sign that lease if you have the slightest hesitation that you could miss a rent payment, and remember you don’t have to buy those name brand clothes. But allow yourself to have a little fun! Take that trip that you have saved up for or go see your friends living a few states away. If you continue to stick to your plan, the rest will work out.
* Dollar cost averaging will not guarantee a profit, or protect you from loss, but may reduce your average cost per share in a fluctuating market.