Young Professionals
6 minute read time
The best time to start your financial planning journey is now. In this article, we dive into investing 101, from creating a budget to setting up your retirement savings. With these basics in hand, you'll be ready to start your investing journey with confidence.
A friend recently told me that “retirement feels so far away that I don’t know what to do now for it.” That timeline can be intimidating — scary, even — for young professionals like us who are decades away from retirement. Sometimes, it can feel like if you don’t do everything exactly right, right now, that you’ll be left behind.
The reality is, if you’re able to do a little work up front with your budget and retirement plan, you’ll set the stage for a successful retirement down the line. Investing is a long-term endeavor, so it’s essential to set clear goals and timelines. By starting early, you give your investments the chance to grow for a longer period of time.
If you have specific financial goals — like buying a home — it’s also important to start thinking about how and when you want to meet those milestones. Your investment horizon will influence your asset allocation and risk tolerance, helping you choose the right investment strategies for you.
One thing I always reassure my friends is that now is the best time to start your financial journey. But for those still unsure of where to begin, here are a few tips on how to get started:
Investing is the process of putting your money to work today to generate a profit in the future. When you invest, you’re buying assets like stocks, bonds, mutual funds or real estate that have a real shot at growing in value over time. While saving keeps your money accessible, investing is all about building long-term wealth.
Terms like “portfolio diversification” and “exchange traded funds” get thrown around like everyone knows what they mean but financial jargon can feel a lot like a foreign language. The good news is that once you break it down, it all clicks into place. Here’s what these common terms actually mean:
Before diving into investments, it's crucial to establish a budget and wrap your head around your income, expenses and savings capacity. After evaluating your income and expenses, you’re able to determine how much you can comfortably allocate without compromising your day-to-day financial stability.
Something I like to remind my friends is that you can change how much you invest whenever you want. In the slower months when you can set more money aside, I recommend bumping your investment contributions up. In the more expensive months, it’s always ok to pull back. Any amount you invest will pay off, so don’t be afraid to start small. There’s no benefit to waiting to start investing until you can afford to invest larger amounts of money, and in fact, starting small and early can help you to set up good financial habits.
Once you have established a budget, you’re ready to start thinking seriously about retirement savings. There are a number of different retirement plans available to most people, but here’s a breakdown of the difference between employer-sponsored and individual retirement plans (IRAs):
To start investing as a young professional, first establish an emergency fund and evaluate your budget. Once you’ve got that foundation down, the next best move is starting a workplace 401(k), especially if there is a company match. From there, you can explore opening a Roth or Traditional IRA to get tax-advantaged growth for the long haul.
The main difference is how they trade and what they cost us. ETFs, or Exchange-Traded Funds, act like individual stocks on an exchange — they trade throughout the day on an exchange, usually come with lower fees and tend to be more tax-efficient. Mutual Funds, on the other hand, only price once at the end of the trading day and are typically managed by professional portfolio managers to hit specific investment goals.
While all investing involves risk, including the possible loss of losing your original investment, it’s generally considered a core component of building wealth over time. For beginners, diversification and thinking long-term are the best defenses against market swings. Just remember that investment products are not FDIC-insured and their value will fluctuate.
Investing can set the stage for long-term financial security. By starting early, understanding your options and leveraging your resources, you can build a strong financial foundation for your future. Investing isn’t just about growing your money — it's about aligning your financial decisions with your long-term goals and aspirations. With these basics in hand, you're well-equipped to embark on your investing journey with confidence. Trust me, you’ll thank yourself in forty years!
Have questions or help starting on your investment journey? Connect with an advisor today.
