That high number on your paycheck doesn’t necessarily mean you are “rich,” and young professionals with a high income may feel this more than anyone. As you navigate the workforce and manage your finances, consider these five tips from Salt Lake City’s trusted fee-only financial planning advisors to help young high earners manage their wealth and prepare for the future.
1. Build your emergency fund
With student loans, mortgage debt, or current expenses piling up on you, it can be easy to forget about stashing away some cash for emergencies. Nevertheless, establishing an adequate emergency fund is one of the first steps in creating personal financial security. If 2020 has taught us anything, it’s that the unexpected can happen. It is essential to be prepared for times like these.
An adequate emergency fund typically contains four to six months of living expenses. Once you have this money saved, try not to touch it… unless, of course, it’s an emergency.
This may seem obvious, but, sadly, too many high-earners are living paycheck to paycheck because they are not sticking to a budget.
Sticking to a budget will help you to avoid “lifestyle creep,” allowing you to save more earlier. It is natural to want the big house, the nice car, and everything else that society believes should come with a large income. Many high earners fall into this trap, allowing their spending to increase at the same rate as their income. However, this attitude can be detrimental to building wealth. Keep a long-term perspective: where do you want to be in 5, 10, or even 30 years? The proper amount of saving now will allow you to meet both your short and long-term goals.
3. Determine your personal risk tolerance
The sooner you start investing, the more time you give your money to grow, and the larger your wealth will be. Near the beginning of your career, you are in an ideal spot to take on higher-risk investments, providing the opportunity for higher reward in the long-term. Make sure to maintain proper diversification and keep your fee burden low as you do. Look for opportunities for tax-advantaged investing, such as 401ks, IRAs, and HSAs. Work with your financial planner to determine and regularly evaluate your personal risk tolerance and portfolio.
4. Pay off debt
Many highly-trained professionals enter the workforce with large amounts of debt. Once you enter the workforce and finally start receiving that big paycheck, it can be tempting to spend it elsewhere. However, try to avoid enlarging your lifestyle. Instead, consider paying down your student loans at an accelerated rate. How fast you pay them off will depend upon cash flow, interest rates, and other investment opportunities. Put in the time to make a plan now, and your future-self will thank you.
5. Find a financial advisor you trust
As you start making more money, working with a financial advisor becomes more and more essential. Tax planning, estate management, and investment planning are just a few aspects of finance that become more complex as your income grows. Working with a financial professional will ensure that your money is working for you in the best way possible.
TrueNorth Wealth offers some of the leading financial planning services in Salt Lake City for young professionals. Whether you’re just starting out in the workforce or you’ve finally caught your big break, TrueNorth fee-based financial advisors can help you gain a fresh perspective on your finances and set you up for future success. Contact us today!