Many people think that financial planning is only for someone who is about to retire. The truth, though, is that the younger you develop a financial strategy for your future, the easier achieving your goals can be.
Whether you are just starting out in the work force, thinking about buying a house, or maybe getting married and starting a family, you will face financial situations that warrant having a relationship with a financial advisor. Here are some reasons why starting to plan early is better.
1. Starting early means that, over-all, you will need to save less. Let’s say you need $160 ten years from now. If you were to save into an investment today that returned 5% per year, you would need to save about $100. If, instead, you decide you will wait two years to save for that $160 goal, and you choose the same investment, you would need to save $110.25. This is a very basic example of how saved money can work for you through compounding. To make it even simpler – saving early means you will need to save less to achieve the same goal.
[This is meant to be a simplified example of how compounding works only and should not be taken as a description of or offer for an investment that will return 5% annually. Investment returns will likely vary and usually cannot be guaranteed.]
2. Just as savings can compound, so can mistakes. Your early adult years can come with a number of important financial decisions, such as buying a home, buying life insurance, and starting to invest for retirement. Not having a full understanding of your needs and your financial capabilities can lead to you making mistakes that have long-term ramifications, such as buying a house you can’t afford, not saving enough for long-term goals, saving into the wrong type of account or investment, or accruing too much or the wrong type of debt.
3. Working toward financial stability early will give you flexibility in your career and your life later on. You often do not know exactly what your career path will be when you start out. One day, you may want to change professions. Perhaps you will decide to start your own business. Having a safety net will give you capital for any costs associated with a career shift, as well as taking the pressure off of saving for retirement later in life.
4. Early in your adult life is when your insurance and benefits needs change the most. Unfortunately, people often fail to take out the right type and amount of coverage. New families often tackle the topic of life insurance but neglect their disability protection. 1 in 5 workers will be unable to work due to “disability” during their lifetime. Almost 90% of these accidents will not be work-related, disqualifying them for workers compensation. On average, less than half of workers who apply for Social Security Disability benefits will be approved, leaving them with little to no income. This lack of income means that, not only are you not saving, but you are losing the savings and assets you have already accumulated. Case in point: the inability to work due to illness or injury causes nearly 50% of mortgage foreclosures in the US. It is critical to any financial planning strategy to be aware of and takes steps to fill any holes in your protection strategies.
5. Avoiding unnecessary debt is critical to goal achievement. By understanding what you can afford and how you can afford it, whether it’s a [hobby], a car, or a house, you can avoid
taking on too much debt. Many people trap themselves in a debt cycle – they get so used to having debt because of poor decisions they made early in life, that they don’t ever figure out how to be free of it.
6. Set a good financial example for your children (aka “I learned it from watching you”). Children learn most of their behaviors from their parents, those regarding money included. If you have anxiety around money or are disorganized with your finances, your children will likely grow to be the same way. However, if you instead teach them to save, to approach money calmly and responsibly, and to be organized with their finances, they are more likely to be financially confident and secure themselves.
7. You don’t have much free time. Why spend it doing all of this? There is almost infinite information related to personal finances available online, and you probably could find all the answers you need through some carefully-worded searches, eventually. However, working with a financial advisor can free you of the time it would take to weed through articles, blogs, the IRS website, budgeting suggestions, savings calculators, etc…, and help you concentrate your money and energy on the strategies that are appropriate for you. This leaves you more time to spend with your friends and family, to focus on your career, and to pursue your non-financial interests.
At Wahlberg FS, we will help you evaluate your goals and current financial standing, develop a detailed plan to help you reach those goals, and monitor your progress along the way.
Contact us today to get started with your complimentary appointment.