Times are changing. So is the demographic of the typical Financial Life Planning client. We have an emerging client. The young professional. There was a time, not too long ago, that serious financial planning for young professionals was something almost impossible to find.
Experienced financial experts gave advice and created financial plans for people, sure, but they typically only served older people on the brink of retirement, who were already wealthy. I’ve always thought this was a weird way to approach something as important as financial planning.
Doesn’t it make more sense to focus on helping the people who need it most? The people who, with the right guidance, advice, and planning, have the potential to grow wealth not just for themselves but for the next generation, charities they care about, and causes they want to support?
If you ask me, that makes far more sense than telling someone in their 30s or 40s to go away and figure it out themselves, which is exactly what the financial planning industry has done for decades.
Thankfully, things have changed. You no longer need to be rich to appoint yourself with a financial planner. There is such a thing as financial planning for young professionals; plans designed to fit your needs at this stage of life.
Getting proactive with your finances
Not only does financial planning specifically for you exist, but I’d say it’s critical. Obviously, I’m biased because I provide financial advice and guidance for a living, but I also practice what I preach.
In fact, many people ask about my own financial planning.
Financial planning has been transformational in my own personal life. I could not have started my own business without a financial plan. I wouldn’t have the motivation to invest my income to meet financial goals without a strategy and plan of action to guide us. My financial planning allows me to be proactive instead of just reactive to what happens to me; I have more control over how I shape my life because I’m in action and on the offensive. I’m organized and aware of what my money is doing, and that’s a great feeling. I also get to spend energy building things up instead of putting out fire after fire.
Perhaps most importantly, my financial planning allows me to feel confident that I’m doing the right things now. I get to fully and freely enjoy how I use my money today because my financial plan shows me that I’m taking the right steps to be financially secure tomorrow.
See? I wasn’t kidding when I said financial planning is critical for people in their 30s and 40s. And again, it’s something that’s actually available to young professionals now. But the thing is, even as one of those young professionals, you might not have any idea about what financial planning looks like in action for you. So let’s break it down here.
Different financial planning levels for young professionals
There are a lot of different ways you can get quality financial advice and support for your financial goals these days. That’s ideal, because it means having a good fit for your needs no matter what phase you’re in with your finances. But it also makes it difficult to figure out what kind of financial planning you truly need.
Can you get away with stashing some money onto a robo-advisor platform? Is your situation complex enough to demand one-on-one attention and a highly-detailed custom plan? Do you just need a sanity check every once in a while?
From our experience, you could organize financial planning for young professionals into three different phases, and you can get support and help at every one. Let’s take a closer look at each so you can identify where you are now and where you might want to go to level up your financial life next.
First phase: Knowing you’ll be fine
Financial planning for young professionals starts with the basics. It should cover the fundamental steps you need to ensure you will be okay now and into the future.
In other words, the first phase of financial planning is to make sure you can survive and you won’t find yourself subsisting off cat food when you’re 80.
This is the bare minimum financial planning that anyone should be doing for themselves, and it’s the kind of work that you can do even when you’re early on in your career and perhaps not making quite as much as you would like to earn but with the potential to earn more money as you go.
At this point, doing your own financial plan is possible to do successfully, and probably makes sense. You don’t need a professional to tell you how to do the basics when there are countless free resources out there.
With the first phase, your financial planning will most likely revolve around taking the following steps:
- Spending less than you earn.
- Learning to manage your cash flow, which is a combination of reducing or controlling expenses and increasing or maintaining your income.
- Taking the difference between what you earn and what you spend, and saving and investing it.
- Building an emergency reserve fund of cash available in case things go sideways.
- Contributing to your retirement accounts.
- Contributing to other shorter-term savings goals, either in savings accounts, investing, or both.
Again, these are all things you can learn more about if you need to, and then do yourself. You likely don’t need to hire someone to help you if you’re at this point.
At a fundamental level, these are all simple and easy to understand steps. They are not necessarily easy steps to take, but they are not complex or beyond what you can figure out on your own.
The most complicated step on this list is if you get to investing. At this point, simply starting is more important than investing with a complex strategy. If you’re brand-new to investing, using a robo-advisor might be a fine solution for now. Robo-advisors make it extremely easy to get started, and again, that’s probably the most important thing you can do at this point.
If you feel a little more confident about your ability to manage your money in the market, you might want to try a low cost, buy and hold indexing strategy through a broker. Most offer very low cost index funds and make it simple to get started.
Mastering the first phase is an excellent starting point, but the main goal at this stage is to feel confident that you’re going to be okay. And the thing is, most of the 30- and 40-somethings have no interest in being “just okay.” They want to thrive. That is entering into the second phase of financial planning for young professionals.
Second phase: Not just surviving but actually thriving
Once you reach the second phase, you probably know the financial basics and are on very solid financial footing. You know how to control your cash flow, and you don’t overspend. You have some cash in emergency reserves, and while you probably have some financial fears, you feel more capable of dealing with the many requirements of adulting.
You increased your earnings or advanced in your career, and you don’t just break even each month, you have money left over and available to use. You contribute to your retirement accounts and maybe even max them out. You feel good about your current lifestyle; it might not be extravagant, but you rarely feel deprived or strapped for cash.
This is a very good position to be in, because just being okay or surviving isn’t much of a concern anymore. You know you can do that, now it’s about learning to truly thrive.
Financial planning at this stage should start to show you how to use your money as a tool to get more value from every dollar you have. A good plan will point out opportunities to take advantage of and help you uncover blind spots so you can avoid common money mistakes that others trip up over. It should go beyond simple money advice like “hey, don’t spend so much,” or “contribute to your RRSP.” You know that. The question now is, what’s next?
When you earn more money, you have more money to make decisions with and for every additional choice and decision you make, you open the door that much wider for missteps and mistakes that can cost you when you get things wrong. Getting to a point where you actually have money left over each month and you’re not sure of the best use of that cash is a great sign that it’s time to work with a financial planner.
It’s still possible to figure this out on your own at this phase. If you’re a committed and want to devote the time, energy, and work it takes to manage your finances at a higher level without an outside, objective perspective to check in with, more power to you.
Just keep in mind that there’s a reason elite athletes have coaches and successful businesspeople have mentors. It’s worth considering why people performing at high levels build supportive teams of experts around them.
Working with a planner can give you a specific, customized, and detailed plan that provides a strategy with action steps along with expert guidance and advice to implement your plan along the way. You have a lot of options when you start looking for planning support. If you’re just getting started, working with a planner on an hourly basis or engaging them for a session might make the most sense. But if you want to fully commit to maximizing your potential and leveraging your money to create your own wealth, then working with a financial planner on an ongoing basis may provide you with a better end result.
Before choosing a financial planner, make sure you know what to look for. Making it to this point and investing in yourself by hiring a planner and getting a financial strategy in place is a huge accomplishment.
Taking all these steps and following the action plan laid out in an initial financial plan will help you build security while positioning you for success with your most important goals.
But progress doesn’t have to end here. If you’re motivated to reach even higher and go from well-off to truly wealthy, the third phase is for you.
Third phase: Create your own wealth and live your best life
Most people feel pretty satisfied once they make it to the second phase of financial planning for young professionals. At that point, you can likely accomplish your biggest goals now like buying a house and in the future like sending your kids to college and retiring at a normal age. But just like some people are not satisfied with being just okay, some people don’t want to settle for the usual goals.
I get it. I am one of those people myself. That’s why financial independence is one of my biggest goals, and why I also refuse to compromise on my life today to get there. You might be in a position where you need to answer questions like:
- If I max out my RRSP and still have money to save, where’s the best place to put it?
- Is my investment portfolio globally diversified or too dependent on a basic index like the TSX?
- Am I invested according to my personal needs, goals, and challenges?
- I understand how I feel about risk but what about my true capacity to take risk?
- Can I afford to start a business?
- Can I afford to take a lower-paying job that I enjoy more, or will that hurt my future financial security?
- How much do I need to invest each year?
- Am I saving too much? Do I have too much in cash?
- How do my current financial choices impact my taxes?
- What would happen to my family if something happened to me?
- Can I retire early? How about quit my job for a year to travel around the world?
- Should I pay off debt faster or invest more?
The list goes on and on. The tricky thing to most of these questions is that there isn’t one right answer. There are a lot of options, choices, and paths you could feasibly take. This is where getting more personalized, custom advice on an ongoing basis starts to make even more sense.
Your situation is more complex; there are more moving parts and bigger consequences to each of your actions and choices. The beauty of more complex financial planning is that your planner can actually model various scenarios for you to consider, and present likely outcomes to each. That gives you the power to make a more informed choice that best aligns with what you need, what you want, and what you hope to accomplish in your life.
Financial planning at this level becomes a process you engage with, not just an hour-long session to answer a few basic questions. I know this first hand and engage in this process myself. I’m willing to do the work and planning to enjoy life today while still ensuring financial freedom for myself in the near future and most of my clients who work together with us feel the same.
The third phase of financial planning is advanced. It’s not for everyone.
It’s for the people who want to create their own wealth so they can live freely and to the fullest. It’s for people who don’t want to wait for retirement before they get to reclaim their time and do what they want.
It’s for those of us who want to enjoy our lifestyle and go beyond just setting ourselves up nicely . We want to create the kind of wealth that will benefit multiple people, from our own families to the causes and communities we want to care for during our lifetimes and even after. Creating wealth for yourself and others requires advanced techniques, complex projections, and sophisticated investing strategies. It requires you to minimize mistakes and maximize every opportunity that comes your way.
It’s not easy to get to this level and it’s even harder to maintain this trajectory over time. Why? Because it’s after that initial excitement of diving in and making big leaps of progress that most people tend to fail. The challenge is not in reaching a successful place. It’s in maintaining your position there, and continuing to elevate yourself to higher and higher levels.
Entropy affects everything even your financial systems. Things will tend toward decay and disorder if we just let them ride on their own. In this case, that means missing the financial actions, allocations, strategies, decisions, necessary to continue to expand how you use your money as a tool to live a great life.
Any phase of financial planning will allow you to make progress and advancements toward a better life. That’s because the act of planning, from the simple stuff you can do yourself to the complex, confusing strategies that are best executed with the guidance of an expert take you from being reactive to proactive.
That this the value in working with a financial planner. You go from sitting around with your finances and waiting for something to happen, then trying to figure out how to deal with it, to acting before things need to be fixed, before something happens, before things go wrong. It’s about taking control of your financial situation and creating the life that you want to live, both today and tomorrow. Its about Keeping Life Current.