Decoding the Basics of Financial Planning for Busy Professionals

In today’s always-on world of juggling demanding careers and family schedules, financial planning often falls by the wayside. However, it is a crucial aspect of securing your future and achieving financial independence. Today’s post will help decode the basics of financial planning and help busy professionals navigate their path to financial stability.

The Importance of Financial Planning

Financial planning isn’t just about money; it’s about defining the things that are important to you, and using money as the tool to help you meet your goals.  Some people are looking to retire at 50 and live a spartan life, while others may desire a vacation home and are happy to work until 70.  The point of planning isn’t to maximize your wealth – it’s to make sure that you can accomplish what you value.  We create a roadmap for your financial life that aligns with your unique values. With an effective financial plan in place, you will manage your income more efficiently, increase your cash flow, and improve your financial understanding and confidence.

Step 1: Set Clear Financial Goals

The first step in financial planning involves setting clear, measurable, and time-bound financial goals. Whether it’s saving for a home down payment, children’s education, retirement, or building an emergency fund, having specific goals can guide your saving and investment strategies.  These goals can, and often do change.  If you have major life goals, like retiring early, it’s best to get those defined early, even if they are far off.  If you don’t have aggressive goals far off in the future, that’s fine too!  Many people that I work with in their 30s and 40s have more near-term goals: remodel the house, buy a new car, pay down debt, expand that emergency fund.  All of these are worthwhile goals, and the best thing about having near-term goals is the feeling of accomplishment when you check them off your list.  As you get into the habit of defining goals and achieving them, it gets easier to add new ones to the list and repeat the process.

Step 2: Create a Budget

A budget serves as a financial blueprint, guiding your spending and saving decisions.  In today’s society, we have a million ways to spend money without noticing it.  Recurring subscriptions, Amazon, Venmo, ApplePay – all these things make it easy for us to part with our money without even pulling out a wallet.    Before you can save money, you first need to know where it all goes.  As you start to categorize and understand where the money goes each month, it becomes easier to decide where you might be able to make some simple changes to free up some cash for your next goal. Various mobile apps and online tools can help automate this process and provide insights into your spending habits.

Step 3: Build an Emergency Fund

As we’ve seen very clearly in the past 3 years, sudden events can have a drastic impact on our lives.  An emergency fund acts as a financial buffer against unexpected events such as job loss or medical emergencies (and even that unexpected new transmission). Aim to save at least three to six months’ worth of living expenses in a separate, easily accessible account.  And if you need to draw on the emergency fund, the next priority should be to build it back up.

Step 4: Pay Off Debt

Debt, particularly high-interest debt, can hamper your financial growth. Create a strategic plan to tackle your debts, prioritizing high-interest ones. Consider strategies like the debt avalanche method (focusing on highest interest rate debt first) or the debt snowball method (focusing on smallest debts first to build momentum).  Once you’ve gotten rid of all of the debt, use your new budget to ensure that your spending stays on track and that you pay off your credit card each month.

Step 5: Invest for the Future

Investing is a powerful tool to grow your wealth over time, leveraging the power of compounding. Most professionals’ first experience with investing comes from their employer’s 401(k).  Make sure you are contributing at least enough to get the match (provided your company has one) and then work towards maxing out your yearly contribution. If your company offers an HAS (Health Savings Account), also consider contributing enough to capture the match if there is one, and then look to max that out as well.  As you get your retirement on track, you may want to work on building wealth by investing in a taxable brokerage account.  You may have a variety of accounts that will be used for different purposes – some may be for near-term goals, while others might be a dozen years in the future.

Step 6: Review Regularly

Your life doesn’t stand still, and your financial plan shouldn’t either.  As your life circumstances, financial goals, and market conditions change, your plan must adapt. Regular reviews will ensure your plan stays aligned with your goals.

Summing it up

Financial planning might seem overwhelming, especially against the backdrop of a demanding career, but taking small steps today can lead to significant rewards in the future. It’s tempting to push off financial planning until that next bonus or raise, but the power of financial planning is making small adjustments over a long timeline.  There’s never a bad time to get started, even if it seems like you don’t have everything exactly as you would like it. Should you need help, don’t hesitate to seek advice from a trusted financial advisor. With the right plan in place, you can confidently navigate your financial journey and achieve your goals.