Studio 42 Workspaces   •   April 3rd, 2019

As a young professional, you’re probably already thinking about where you want to be in life. If you’re going to take a trip to Europe, buy a house, or have a stable retirement, you need a sound financial plan to get you there.

When it comes to making financial decisions, you’re the best person to put together a plan for your money. Working with a financial advisor can take you to the next level, but here are five essential steps to start the financial planning process.

#1—Goals

As a young professional, you have the most significant advantage when it comes to managing your finances: time. If you’re not sure where to start, the first step is to think about where you want to go in life. Having strong goals will inspire you to take action and to commit to your financial plan even as you experience challenges.

It’s best to start with short-term goals, such as saving for a new piece of furniture or a down payment on a car. Once you see the power of setting goals and following through, you’ll have the confidence and commitment to move toward long-term goals.

With time on your side, you can dream your biggest dreams and have a lifetime to work toward goals such as buying a house, building a retirement fund, and living debt-free.

#2—Awareness

Knowing how much money you have, where it’s coming from, and what it’s spent is the crucial step in every financial plan. This part of personal finance is commonly referred to as a budget, and there isn’t a right or wrong way to do it.

There are a few ways to put together a budget, and the two most common are the 50/20/30 rule and the zero-based budget.

• 50/20/30 Plan—This is a minimalist approach to budgeting where 50% of your income goes to essentials and 20% to savings, and the final 30% is for personal or unnecessary expenses such as gym memberships and dining out with your friends.
• The Zero-Based Budget—To save money, your expenditures must be less than your income, and this budget is a good step to take to improve your financial pictureto improve your financial picture. The goal is to have your income minus your expenses equaling zero, so every dollar has a job to do.

The method you choose doesn’t matter much. The important thing is to find what works best for you.

#3—Saving

If you don’t have any money saved, it’s unlikely you’ll reach any of your financial goals. Even if you’re managing your finances just fine, a job layoff or significant medical expense can come out of nowhere and throw you off track.

Every financial plan must include savings. At a minimum, young professionals need to have an emergency fund with three to six months’ worth of cash set aside to cover living expenses and retirement savings.

#4—Debt Management

Having regular monthly payments, especially high-interest debt, can keep you from doing the things you want in life. Paying off credit card debt, student loans, and car payments should be your primary focus.

If you have paid off the majority of your debt, you can accomplish your goals sooner by saving or investing that money instead.

#5—Review Your Plan

It’s been said that change is the only constant in life, and that’s never been more accurate than when it comes to your financial plan. For young professionals who may not yet own a home, have a spouse or children, or have built up a considerable amount of assets, there are many changes to come.

As you move through life, your goals will change, your income and expenses will fluctuate, and your priorities will shift. To have the best financial plan, make sure you review it often and update it regularly.

About the Author

Marguerita M. Cheng is the Chief Executive Officer at Blue Ocean Global Wealth. Marguerita is a past spokesperson for the AARP Financial Freedom Campaign and a regular columnist for Investopedia & Kiplinger. She is a member of CNBC Digital Financial Advisor Council. She is a CFP® professional, a Chartered Retirement Planning Counselor^SM, a Retirement Income Certified Professional® and a Certified Divorce Financial Analyst^TM. As a Certified Financial Planner Board of Standards (CFP Board) Ambassador, Marguerita helps educate the public, policy makers, and media about the benefits of competent, ethical financial planning. She serves as a Women’s Initiative (WIN) Advocate and member of the Diversity Advisory Group (DAG) for CFP Board. She served on the Financial Planning Association (FPA) National Board of Directors from 2013 – 2015 and is a past president of the Financial Planning Association of the National Capital Area (FPA NCA).

Rita is a recipient of the prestigious Japanese Monbukagakusho Scholarship. In 2017, she was named the #3 Most Influential Financial Advisor in the Investopedia Top 100 and a Woman to Watch by InvestmentNews.

Marguerita’s mantra is :

“So many people spend their health to gain wealth, and then have to pend their wealth to regain their health”

(A.J. Reb Materi).