Because my dad is a financial advisor, I’ve been hearing about financial planning since I was a kid. For instance, there’s a very distinct memory of road-tripping from Pennsylvania in a car without AC while my father explained the difference between a Roth and traditional IRA. I think I was about 12.
Now in my mid-20s, I realize how incredibly lucky I was to have this sort of guidance so early on. It wasn’t until my peers and I entered the workforce and started talking about things like budgeting and 401(k)s that I began to understand how uncommon even basic financial knowledge is. Hell, I have former roommates that have done advanced calculus and still have no idea how to write a check.
The following 5 items are things that seem very basic but, in my experience, can make a big difference both short- and long-term.*
- Set goals. Like with anything else, setting goals is important because it helps you put financial planning in perspective. Are your goals short-term: travel, wedding, something in the near future? Are they long-term: home ownership, children’s education, retirement? Pro tip: investment professionals have heard almost every goal under the sun. If you’re saving for a sailboat, cosmetic surgery, or a life-size wizard statue, it’s cool. Just make sure to include it in your goals. Summary: What do you want? Groovy, now let’s make it happen.
- Do research. There is A LOT of information out there about saving, investing, etc. Most types of investment accounts have entire IRS publications devoted to them. But how many people do you know who sit down and read every IRS publication down to the last letter. No one? I thought so. A journey begins with a single step. An IRA is an Individual Retirement Account. A 401(k) is an employer-sponsored retirement plan and, no, your employer does not invest $401k dollars for you– unless you’re working for some really bitchin’ company or maybe the mafia. From a more practical standpoint, the financial industry is full of jargon and options and it’s easy to get overwhelmed. Going in with some knowledge of the jargon helps you keep up. Summary: It’s always good to go in with some background knowledge so you don’t end up looking like a deer-in-headlights and investing in some sort of basketweaving pyramid scheme.
- Know your emotions. Emotions are some of the biggest driving forces in financial decisions. We can’t help it; we’re human. But it helps to acknowledge your emotions upfront. Especially fear. Because, to be 100% honest, there is no 100% risk-free investment. That’s not how investments work.
- Ask questions. If you’re talking finances with someone and they use a word or phrase that you don’t recognize, ask what it means. If you aren’t comfortable doing that, make a note (either mentally or in your phone) to look it up later. For instance, many teachers invest in something called a 403(b), which is a retirement account similar to a 401(k) that can be opened by schools, churches, governmental organizations, and charitable organizations. If you aren’t in one of those fields, there’s no reason to know that. But it can’t hurt. Summary: You can say “ah, yes, we’re reallocating our capital gains” as many times as you want to impress the cool dudes at the craft brewery, but you should also know what it means. So ask.
- Talk to someone. I say everyone benefits from therapy at some point in their lives. Well, the same is true of financial planning. Think of financial advisors or planners as “money therapists.” This is the last tip because it works with all the other tips. Once you’ve set goals, advisors can help you figure out the best way to achieve them. They can help with research and answer even the most basic of your questions. They can help you work with your emotions and stay the financial path you’ve set. They know the options available. They know the limitations of those options. They have the experience to help you determine the best course of action. Taking advice when you’re first starting to save can have enormous payouts down the line. Summary: You probably don’t know what you’re doing. Most of us don’t. But there are people out there who do.
*Please keep in mind, I am not a financial advisor. I am not licensed to give investment advice. The tips above have served me well in my life, and are things I have learned from the experiences of others.
What is your biggest piece of financial advice? What do you know now that you wish you’d known in your 20s?