Financial Planning for Young Professionals

Jessica Quindlen: [00:00:00] Welcome back to the Sound Cents podcast. I'm Jessica Quindlen. Today we're discussing financial planning for young professionals. I have Bree Shellito, our now Senior Manager of Community and Workforce Wellbeing. Hello, Bree.

Bree Shellito: Hey, Jess.

Jessica Quindlen: And Laura Straub, our Community Education Lead. Hello, Laura.

Laura Straub: Hey.

Jessica Quindlen: All right, Bree, let's dive in. What are some common financial goals young professionals should consider?

Bree Shellito: That's a great question. I mean, like all ages, it’s going to vary based on the person and their values, but the definite one I love to stress for young professionals is retirement. Even though retirement may seem far away for some and closer for others, depending on their goals, it's important to start contributing to a retirement account as soon as possible, especially if your workplace offers a match option. I highly encourage everyone to at least take advantage of their employer's match and then contribute as much as is appropriate for their situation because that's really going to add up.

When we're talking about numbers [00:01:00] over time, the earlier you start contributing, you’re far better off for later years. So even though retirement feels far into the horizon, my number one recommendation is start as soon as you can.

Along with retirement, certainly other savings should be prioritized. Saving for anything that matters to you is going to be a big one, and an emergency savings. As a young professional, you're starting to get more things in your life, maybe a home, maybe a car. Of course, with those things come emergencies and we want to be prepared for those. That's when we really want to start thinking about what we value. What we want to be saving for and setting up those goals and working toward them.

Jessica Quindlen: Awesome. Thank you. Laura, how do these goals vary based on individual circumstances?

Laura Straub: As Bree was saying, our individualized values that we have really come into play. If we want a home then starting to saving up for a home can certainly be the next step for you. So determining what your financial goals are and then start [00:02:00] tackling those.

And then it can really vary too based on our circumstances. Do we have a lot of student loans still that we're paying off? Do we like to travel more than we want a home or a car? What are we prioritizing over other things is really going to be how they start to vary and change from person to person.

And then with the emergency fund too just getting started. It's recommended to have three to six months of expenses, but that can be a lot. So even simply having a $1,000 to start with, but it's based on your comfort level too. If you are a little bit more anxiety-prone about that, or worry about that kind of thing, then you might look to have more in savings than someone else who may not have that as much of a stress in their life.

Jessica Quindlen: Yes, for sure. I know we talk about budgeting a lot on this podcast. It's incredibly important, but let's dive into why specifically young professionals should be thinking about budgeting.

Bree Shellito: It's the best time to start getting used [00:03:00] to it and sticking to it. As a young professional, that's a skill that you'll just keep on building. A budget is a plan for our money. So, it's an idea. We know where the money's going, so we want to make sure we're not cutting out the fun. That's not what it's about.

A budget's not going to work if you don't leave a little bit of room for the wants and the fun. But if we can really stick to our purpose in what we're spending our money on and our values, that means it's going to be a lot easier to sustain.

There's also a concept that we talk about from time to time that we call lifestyle inflation, and this really gets the best of people as they start progressing in their career. The idea of lifestyle inflation is kind of like a hamster wheel. So, you get a raise at work then you're like, “oh well I can upgrade my car or my home or my phone or whatever it may be.”

Well, that wheel just keeps turning so we make more money. We spend more money. It's hard to get out of that cycle. So having an idea of what we value is important. That way when that raise comes up, when that bonus comes out, whatever that looks like for that young professional, they already have an [00:04:00] idea of where they want to allocate that.

It's not just extra money. That way we can put more towards our values and the things we want to save for and really avoid turning into that spend, save, spend, save cycle where we can just make sure we're saving more money towards the goals that we want in life.

Jessica Quindlen: I love that. What are some practical tips for creating and sticking to that budget, especially for the young folk?

Laura Straub: Looking at percentile budgeting can really help you get a broader sense of your budget. So that's 50%, 30%, 20%. So 50% toward our needs like housing, transportation, and food. And then 30% toward those wants in life like a gym membership or streaming services, maybe a new wardrobe. And then 20% towards savings. So, all of those saving goals that we had in place earlier.

It's helpful to review your budget and stick to established percentages. Examining our spending habits provides valuable context. Sometimes, who we hang out with can influence our spending. Additionally, certain stores might tempt us into impulse buying more frequently or without a budget. For me, that's Costco, but for others, it might be Target or another favorite store. Identifying these spending habits is key to changing our behaviors and improving our financial management.

And then we want to get in the habit of checking our accounts more regularly. Especially as young professionals, just getting in that habit of looking at our accounts and how much do we owe on things will help with creating your budget because you'll see like, okay, yes, I am spending a little bit more on food than I thought I was. So just kind of getting in that regular habit of checking accounts.

Bree Shellito: I think it's easy when you're young, too, to think of things as temporary. You don't know if this is where you're going to live. You don't know if this is where you want to build your life or your career, but still thinking about things and the future is important.

So that idea of, “oh, I'll save for retirement later,” you can keep [00:06:00] pushing that rock up that hill until you're in your 30s, 40s, and by then getting enough to actually retire is a lot harder. So certainly, knowing where you want to go, knowing what your goals are, knowing what you value, but finding some balance between the I'm here temporarily, even if it's at a job.

And we talked about retirement earlier. You can move your retirement account to your next job too. It doesn't have to stay with that employer, and in fact, we recommend that you do. There are different fees and things associated with removing the money from those accounts, so you can continue moving those accounts with you. They're not permanent with that employer, especially if you don't think you'll be permanent with that employer. They're easy to move, and that's what we'd recommend. Don't hold off because you're unsure how long you'll stay. Regardless of where you plan to spread your roots, getting started on these things early is far better.

Jessica Quindlen: That's great. What are some strategies for tackling “young debt” that is common like student loans, perhaps your first car?

Bree Shellito: Tackling them is the key word there. [00:07:00] We see it all too often where they're putting them off, just like we were talking about earlier. Putting them off, trying to make the lowest payments possible. And I get it. I get that money is probably tighter around these ages. You're not earning what you're anticipated to earn with what you're looking at, especially student loans.

My favorite strategy is the avalanche strategy. That's a lesser known one, but really with that one, we're looking at interest rates. So, the one that we're putting the most possibility and the most money towards is the one that has the highest interest rate because that's our most expensive debt. The more commonly known one is the snowball method.

That one can be satisfying because you're starting with the lowest balance. So, we're paying off loans, we're then moving those funds that we were using to the next one has that snowball effect, which can be satisfying, but the most cost saving one is going to be that avalanche method, tackling the debt you have with the highest interest rate. That way you pay off your most expensive debt first.

Laura Straub: To jump into this student loans piece, looking for resources can really help you. Going to StudentAid.gov and checking out the SAVE program that's happening right now can show if you qualify for different income-driven repayment plans or other repayment plans. This can really help some folks as well.

Bree Shellito: But just because you qualify for them and those are the lowest payments possible, doesn't mean that's the best thing to do. You drag those out for a lot longer, that interest is going to add up pretty quickly. Now, if you have to do that, understand making a plan for the future where you can put more towards that is definitely key.

Jessica Quindlen: I love that. All right. Going back to the 50, 30, 20 idea, right? So we have 20 save. That's great. 30 wants, 50 needs. Where does debt fit in?

Laura Straub: Great question, Jess. It fits in with that 20% savings. We do want to have that be part of our savings piece because once we're done paying off that debt, then we want to continue at least having that effort of saving that money instead of putting it toward debt.

Bree Shellito: Sometimes it also is in the 50 if it's part of your needs, your living expenses, your transportation. So, if we're [00:09:00] talking about a car loan or a home loan that sometimes will fit in that 50.

Laura Straub: Good point. Good point. But yeah, for our student loans or other credit card debt, that would likely fit in that 20% savings.

Jessica Quindlen: And would you recommend with that 20% that it's not all 20% debt though? That maybe you can split it how you want it, but maybe at least 5-10% is still saved.

Laura Straub: Yes.

Jessica Quindlen: Fantastic, that's great. What are some strategies for young professionals to build those emergency funds and savings while they're still just figuring out how to be a young professional?

Bree Shellito: Because we're talking about savings, and I know you guys just discussed the idea of whether to put some towards savings and some towards debt, inflation comes into play here as well. It's important to understand that a typical savings account doesn't always keep up with inflation.

Take a look at what you're going to be earning versus the interest rates on those loans. That's when you can help make the determination to put more towards debt payoff. It's still important to have something for emergencies because emergencies can easily put us back into much more debt. And often, in an emergency situation, it's usually high-interest debt.

We're using a credit card or something like that. So, truly the strategy I'd recommend is starting small. I know Laura mentioned $1,000, but even if for you that's $20 to start, let's get to that. Let's get to $50, then to $100. Really celebrate those wins—not monetarily. Ideally, we're not going to celebrate and go out and make that goal happen, but starting small. $1,000 is a really great goal, but if you need to start smaller, $100 is fine.

Think about what emergencies could mean in your life. If you own a vehicle, a blown tire or something similar can be a big deal and can definitely derail the other choices you're making. So, having some money set aside that you can use and starting out small is important.

Look for different savings accounts with higher yields. CDs can be a perfect option, especially since they help you save by locking in the money for a certain period, as little as three months. Some might be even shorter than that, but the idea of putting that money aside and not using it for three months can really help, as you'll be earning a little bit more on that money.

Jessica Quindlen: Anything else for the young professionals out there?

Bree Shellito: Yeah, don't be afraid to get help. We offer free financial coaching accessible to anyone, member or non-member. Come in, and we can assist you in putting together a budget. Additionally, our financial advisors are available to discuss different accounts and various ways to save and invest.

We've got tons of tools and resources to help you establish a budget, savings plan, debt repayment strategy. So, don't hesitate to reach out and seek these resources—we're here to support you.

Laura Straub: And honestly, learn from each other as well. Have conversations with your friends about finances—it's not such a taboo topic anymore. You can discuss things like, "Hey, how did you budget this month, Bree?" and help each other out because there's so much to manage and juggle, especially as young professionals in the workplace.

Jessica Quindlen: I love that. Thank you so much. Well, that brings us to the end of our show. Bree, Laura, thanks so much for being here. It was great having you.

Laura Straub: Thank you.

Bree Shellito: Thanks.

Jessica Quindlen: Thank you for listening to Sound Cents from Ent Credit Union. Be sure to follow our podcast as well as rate and review us. I'm Jessica Quindlen. I will see you next week, same time, same place.