When you’re just beginning your (gulp) “adult life,” the last thing on your mind is likely how you want to retire or what your life will look like decades from now. That’s something your parents, wealthy people, or investment bankers worry about, right? For you, it all seems so far down the road. But there’s a saying that perfectly captures the flaw in this line of thinking: “The trouble is, you think you have time.”
The reality is, being proactive about managing finances in your 20s can make it so much easier to build the life you want for yourself. We’ll show you why, plus what a strong financial plan can do for you.
The genius of starting early
It’s natural to feel that there will be plenty of opportunities to take care of your financial future later. But starting sooner can actually make a big difference and help your money take you further.
“You should start your financial plan when you start earning money,” says Beverly L. Hobbs, AAMS®, an LPL Financial Advisor with Cobalt CU Wealth Management. “Time is on our side when we’re younger.”
For example, a 20-year-old investing just $50 per month with a 5 percent annual percentage rate return would have $76,000 at age 60. A 40-year-old would need to invest $185 monthly – more than three times as much – just to end up with the same amount. And when you start younger, it can be easier because it becomes a habit.
“When creating a budget, I have my clients add a line and label it ‘me,’” Hobbs says. “Pay yourself first and don’t wait to see how much is left at the end of the month to put into savings. No one is more important than you.”
The keys to building a solid plan
So, what does it really take? What are the elements of a strong financial plan? It can begin simply with a savings account and build over time by adding investments and insurance for all aspects of your life.
“You’ll want a savings plan for your short-term investments and emergencies that can arise when you least expect them,” Hobbs says. “Your investment plan should address your financial needs for retirement, as well as estate and tax planning strategies. And an insurance plan should encompass all of your related needs – including but not limited to life, disability, and long-term care.”
The importance of being flexible
A strong financial plan can give you the security you need to live the life you want. And the good thing is, even when you start early, your plan doesn’t have to be set in stone. In fact, the goals you have today are apt to change (at least somewhat) over time, so your financial plan will need to be flexible enough to grow and change along with them. Cobalt CU can help you carve out a well-defined path for managing personal finances today that may make your goals easier to achieve in the long run.
“It all starts with a savings account,” Hobbs says. “We then have the opportunity to sit down and have a conversation about individual goals, needs, wants, and risk tolerance and create a personal financial plan giving them the opportunity to pursue their financial goals.”
Ready to move forward with your financial plan? Download our Questions to Ask Your Financial Advisor worksheet to get the ball rolling.