By Reagan Mitchell, CFP® and Managing Director of WealthyMe

Many people, irrespective of age, struggle with being completely disciplined in following a financial plan or strategy. The most effective way is to have a certified financial planner to help keep tabs on your financial goals as well as reviewing your financial plan against those goals at least once a year. Whether it be risk mitigation, debt-reduction, savings or wealth creation.

The unique financial situation of young professionals

Many young professionals especially Gen Z and Millennials are in a unique life phase with a unique set of financial circumstances. This group of people are at the progressive phase of their careers, earning above average incomes, able to access information at their fingertips, don’t have children and likely still living with their parents. Given this dynamic, the young professionals are having the time of their lives, enjoying the fact that they have surplus income and spending money on things that matter to them. Their financial planning goals range from wanting to build a  good credit score, saving to purchase that first vehicle and sometimes it is planning a group overseas trip, which is great. However, they need to guard against reckless spending which could lead to unnecessary debt accumulation to satisfy immediate gratification needs.   

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While you’re unmarried, don’t have dependents and possibly still living with parents, be sure to put a financial plan in place, because chances are that without it, you’re going to spend recklessly. Start simply by budgeting to track your expenses and then doing monthly recons. This process can be automated by using personal finance apps like 22Seven or even just an excel spreadsheet. 

Secondly, and this is a huge determining factor on how quickly and how well financial goals are reached, is choosing a certified financial planning partner who will assist in creating a financial roadmap.

These are the financial goals we suggest young professionals pay particular attention to and also how to prioritise them to make the most of what they’re earning. 

  1. Before you do anything else, make sure that you’re protected. Usually the last thing on the minds of young professionals, which is critically important, is to buy protection for unforeseen life events like being retrenched, losing their ability to earn income because of an illness or injury, dying to soon (funeral or life insurance), incurring major medical expenses and also protection for items like vehicles and technology gadgets. 
  2. Build a good credit score – how? Pay all your bills on time, limit spending on credit facilities like credit cards or clothing accounts to a maximum of 70% and don’t necessarily close your credit facilities when it is paid up. This hacks the credit utilisation algorithm that credit bureaus apply to your credit score. 
  3. Understanding the cost of debt and thoroughly comparing financial transactions like buying a vehicle or obtaining a credit card. For unavoidable debt of the big ticket items, try save towards a substantial deposit to reduce interest in the long run / repayment period.  
  4. Creating multiple streams of income; actively through a side hustle and stock trading or passively through investment returns. The income from this can go towards funding: 

  1. Savings towards:
    1. an emergency fund that will provide protection for unexpected financial emergencies or financial shocks. Examples would be paying an excess on a short-term insurance claim or perhaps covering the cost of medical expenses not covered by a medical aid. 
    2. a specific goal like an international holiday or capital to start a business in the future, as opposed to accumulating debt to pay for it. 
  2. Building wealth. Once the layers of protection have been prioritised, young professionals can now focus on wealth creation which may include investments for retirement, purchasing a diversified portfolio of financial market instruments like shares and listed property that will provide passive income in the future as well as capital growth . 

  1. Not forgetting the importance of investing in knowledge by furthering your studies that will ultimately increase earning potential in the long-run.
  2. Lastly, young people, don’t forget to draft a Will. This will deal with distribution of any assets accumulated in the event of passing away too soon. 

Be ambitious in your goal-setting, but also remember to be realistic by making provision for disposable cash to spend on socialising. You’re young, after all. Prudence doesn’t have to come at the expense of enjoying the fruits of your labour from time to time. 

In conclusion, it would be remiss not to mention that young professionals should really start their journey towards setting up their finances for long-term success by improving their financial literacy. It’s very easy these days with all the information available online, for example WealthyMe clients in partnership with 1Life have access to a rich content bank through Boston College.

When you’re better informed, you naturally make better decisions.