Ben is a blogger at YoungMoneyFinance.com where he seeks to provide modern, relevant, and easy to understand financial knowledge for young professionals.
Hi, I’m a young professional, likely just like you! I’ve got a job, own a house and have a budget. I’ve got bills to pay, vacations to take, dinners to be eaten out and retirement to save for. I like to think I’m setting myself up for long-term financial success and wanted to share a few of the tips I use!
1) Keep an emergency fund handy.
Unfortunately we live in a broken world, and bad things happen to both good and bad people all the time. I personally have had my car stolen (and then recovered) and I’ve had friends lose their jobs, lose a spouse or suffer a serious illness that forced them to stop working. Sooner or later we’ll all face an emergency, so you might as well be prepared for it. It’s recommended that you set aside about 6 month of expenses away, although I’m a little more risk averse and have a little more than that personally set aside.
2) Have an online savings account that pays 10x more.
I keep a decent chunk of my money in a savings account, money that I’m either not comfortable risking by investing or money that I’m saving up for something (i.e. home repairs, grad school or a car) big. Rather than keep it in my regular bank account (I bank at a large national bank, I like having branches close by when I travel), I have an online bank account (American Express) that pays almost 10x the amount of my big national bank account (1.45% vs 0.1% at the time of this article). I’ll need this money in the next 1-2 years which is why I’m not investing it and since I’m saving it, I might as well earn all the interest I can!
3) I have a budget.
I know, earthshattering right? Surprisingly a lot of people don’t, or don’t have one they actively use. If you don’t know where your money goes, you certainly won’t have a plan and instead of telling it what to do, it’ll tell you what it did! Each month, I have saving goals, as well as spending goals that I aim to hit. By giving putting each dollar into a category, I can plan to save, and work to achieve that savings goal.
4) I auto-save for retirement.
I’m fortunate to have access to a 401(k) retirement account at work, and I’m fortunate to get a 3% match. Being successful doesn’t just involve getting lucky; it involves taking advantage of the fortunate circumstances that have come your way. I save 15% for retirement and I do this automatically through work so it’s pulled out each paycheck. This way, I’m not tempted to spend the money and it’s almost out of sight out of mind; I don’t see it in my paycheck so I don’t think about it as much.
5) I invest most of my investments in index funds.
I used to think highly of myself for my investing prowess. Inspired by successful investors Warren Buffet, I figured my financial background, knowledge and interest could give me an edge when it came to picking stocks. However, after stepping back and comparing performance, I found that I simply couldn’t consistently do better than a simple index fund, which invests in the overall market. After eating a slice of humble pie, I decided to put more and more of my investment money in index funds instead of individual stocks. I satisfy my investment itch with a little ‘mad money’ in a few stocks and by following the market closely, however I keep most of it in index funds and let them do the hard work!
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