What are the most common financial challenges of early career professionals? What do they mean and what can be done about each?
Let's jump in!
1. Student Loan Debt
Most are loaded with significant student loan debt from undergrad, graduate, or professional schools.
Managing and repaying them can be a significant financial strain. They’re not often included in the computation for mortgages and other types of debt so it’s easy to compound the payback stress.
What to do:
Explore repayment options: Investigate income-driven repayment plans or refinancing options to lower monthly payments or reduce interest rates.
Prioritize high-interest loans: Focus on paying off loans with the highest interest rates first to reduce the total interest paid over time.
2. Building Emergency Funds
Building a safety net of savings to cover unexpected expenses, such as unemployment, medical emergencies or car repairs, can be difficult for everyone but are more challenging when just starting out with lower income and significant debt.
What to do:
Start small: Aim to save a small, manageable amount from each paycheck until you build up to three to six months' worth of living expenses.
Automate savings: Set up automatic transfers to a savings account dedicated to your emergency fund.
3. Budgeting & Managing Expenses
Learning to live within your income, tracking spending, and creating a realistic budget that prioritizes long-term goals can be challenging, especially for those who are managing their finances independently for the first time.
What to do:
Start with writing down what you value and long-term goals, such as living debt free, buying a house, retiring early, having kids, etc.
Then track spending with a budgeting app or online tool.
Evaluate how your spending lines up with your written values and long-term goals.
Create a reverse budget. This is when you create a list of goals, short-term & long-term, and automate funding them each month. The money left over is generally free for use as you see fit.
Ask for help.
4. Saving for Retirement
While it feels far off, many professionals at all stages of their careers typically fall short on retirement planning and saving. It’s easy to think “I’ll wait this month or this year and put more in later,” but it rarely happens.
What to do:
Starting slow with small amounts is always better than procrastinating.
Take advantage of employer-sponsored retirement plans, such as a 401(k), especially if they offer matching contributions.
Start with a small contribution percentage and gradually increase it over time as your income grows.
5. Building Credit & Keeping it Healthy
A good credit sore and history is important for future financial milestones, such as buying a house. It typically makes the process easier and less expensive in the long-run.
What to do:
Read up on how credit scores work.
Understand how credit and debt works.
Use credit cards wisely: When purchasing with credit, pay off the balance in full each month. This builds a positive history without accruing interest.
Monitor your credit score and credit report regularly. This can give you real-time updates on your progress and helps prevent fraud.
6. Overspending on Lifestyle (aka Lifestyle Creep)
It’s easy to get seduced into a cushy feeling life when you finally have money to spend. This is especially true in urban settings where rent can be extremely expensive and there’s a buzzing social scene.
The problem: once you get used to the lifestyle, reducing to achieve other goals triggers loss aversion, making it extremely hard to make the necessary changes. Ultimately this means many are living paycheck-to-paycheck, even with high 6-figure incomes.
What to do:
Lay out long-term priorities and values on money. Write them out.
Weigh financial decisions against the these values and goals.
Consider more affordable living arrangements, such as roommates or living in a less expensive area.
Identify and reduce discretionary spending, focusing on essential expenses.
These steps can be hard at first but it’s only temporary and you’ll be proud you stuck with it when you’re checking the goals off your list.
7. Stable Income & Job Security
Early career stages Often come with job uncertainty and fluctuating income. This can make financial planning challenging, and bring feelings of disappointment.
What to do about it:
Build your emergency fund to carry you through times of uncertainty. It’s not ideal to live off savings but it’s better than living off debt.
Make professional development a priority and never stop learning. This will continuously add skills to your tool chest and enhance job security.
Build a financial buffer to cover expenses in case of job loss or income fluctuation.
8. Saving for Major Purchases
Major life milestones, such as buying a house or a car, requires significant savings and financial planning. This often feels daunting when starting a career.
What to do:
Set specific savings goals and timelines for major purchases.
Start small. Consistency is the most important factor in success.
Open a dedicated savings account for this purpose and contribute regularly.
9. Understanding & Using Benefits
Understanding your employment benefits—like health insurance, retirement plans, and other perks—can sound easy, and making the most out of them can be confusing.
But maximizing them is an often overlooked and major factor to financial success.
What to do:
Take the time to thoroughly understand your employment benefits package within the first 30 days of employment or during the new enrollment period. Important changes and opt-ins are commonly limited to this timeframe.
Consult with HR or a fiduciary financial advisor to make informed decisions about benefits like health insurance, retirement plans, health savings accounts, flexible spending accounts, and coordinating other benefits with your overall financial plan.
Frequently, benefits can help save money on things you’re paying for out of your own pocket.
10. Balancing Financial Goals & Staying Focused
Balancing the many interests and prioritizing specific goals—such as paying off debt, saving for a home, investing for retirement, and building an emergency fund—are complex tasks that requires discipline and strategic planning.
What to do:
Prioritize goals based on urgency and importance. For example, high-interest debt repayment and emergency fund savings might take precedence over other goals.
Consider asking for help. Most of us don’t have the time necessary to research the best solutions and the energy to then implement them. Outside fiduciary help is great for taking care of this for you.
Remember to ask for help if you want or need it. Fiduciary advisors and financial planners specialize in helping you achieve your goals and doing what's best for you.
Comments