It can be easy for us to get caught up in the busyness of life. We are so focused on progressing in our careers that we may lose sight of the main reason(s) we are working so hard in the first place. When you reflect on some of the biggest financial benchmarks you want to accomplish, what comes to mind?
Some people want to pay off their student loans. Others want to be completely debt free. Some people want to buy their dream home, others want to fully fund college for their children. Before you hire a financial advisor or start investing money in various places, figure out what’s most important to you and create a specific plan to meet that goal.
Do you want to pay off your student loans? Doing so may require you to live below your means for the next 5 or 10 years so that you can increase your monthly student loans payments and lower the loan balance quicker. If you work in a non-profit job that qualifies for loan forgiveness, you may want to make sure you’re enrolled in an income-driven repayment plan so that your student loans payments are lowered to an amount you can actually afford. If your job doesn’t qualify for federal loan forgiveness and you have already refinanced your loans with a private company, perhaps you should see if your job would be willing to pay down some of your student loan debt directly – some professions may use this student loan payment as a type of salary bonus. Regardless of the route you take, if being student-loan debt free is a goal, you may want to think of ways to pay it off within the next few years and align your financial priorities to meet that goal.
Do you want to purchase your dream home? For many young professionals, buying a home is the ultimate sign of adulting. This desire to have a place of their own intensifies when young professionals reach their early to mid 30s, get married, or become more settled in their careers. If you desire your own place as well, perhaps you should meet with a specialist at your bank to see if any unique mortgage programs are available to buyers in your profession, income bracket, and geographic region. You may be surprised at the options mentioned. Along with seeing what’s available, you should also re-shift your focus to saving a larger amount of money in your savings account than you otherwise would. Having this money available will help you pay for the house down payment, closing costs, moving expenses, and other associated home-buying fees.
Do you want to retire early or work part time? Many people who like their careers may decide that other things are more important to them. Perhaps they enjoy their work but want to be able spend a little more time at home with their children. Maybe they want to cut back to part-time. Other people may choose to retire early and do something else altogether. If working less or retiring early is one of your goals, then it may require you to invest aggressively in retire accounts from a very early age. While some people may only contribute 10% of their salary to retirement, you may want to double or triple that amount. Perhaps you should consider maxing out your work retirement account then setting up additional taxable accounts to invest even more money. My point? If you plan to retire soon or work part-time, you will likely need to invest more money toward retirement from an earlier age so that you can let the magic of compound interest work in your favor and actually afford to make that change in your career.
Do you want to pay for your kids’ college? Perhaps you are someone who would like to finance your kid’s educational costs. Because the cost of college has continued to increase over the years, paying for an undergraduate education can be quite expensive. Many parents who plan to pay this cost end up saving/investing money for many years in a 529plan that saves them money in taxes. Other parents may opt to save money in a Roth IRA, set up a custodial account for their kids, or purchase educational bonds. Regardless of which method you choose, you will likely need to save money each month which will require you to think over your monthly income to see just how much you can afford to spare in order to stack up enough money over time to cover the cost of college.
Do you want to be completely debt free? Many people are risk averse and hate debt. The thought of owing someone, or some financial institution money, bothers them and adds bills to their monthly expenses that decreases the amount of money they can spend on other things they enjoy like travel, entertainment events, and fancy restaurants. If you feel similarly, and would like to get rid of all of your debt, doing so may require some changes in your finances. Perhaps you need to decrease the amount you contribute to retirement investments and instead pay down your credit card debt and car loans more aggressively? You may also need to learn to save aggressively and pay for everything in cash instead of credit.
My point? Many of us have financial goals we would like to accomplish. Achieving these goals may require some sacrifice and a shift in how we think about our money. It may also change how much we invest for retirement or spend on various debt repayments. Think about what is most important to you financially and make the necessary shifts in your finances to bring these goals into fruition.
The Power of Focus: Pick your ONE thing
As young professionals who have overcome the post-grad struggle and are finally starting to build our careers, we understand the value of money. It may not be the only thing we care about, but having enough of it to live well and enjoy life with our loved ones is essential. Instead of mindlessly spending money then awaiting our next paychecks, we should re-examine our habits and utilize the power of focus.
Step 1: Determine your top 5 “big” goals.
While the devil is in the details, it’s often helpful to start by looking at the bigger picture. A few times a year I sit back and think about my overall financial goals. Although this can seem a bit esoteric initially, it doesn’t have to be. Simply identify your most important financial goals. As a young resident physician my top 5 goals are to:
1-Be completely debt-free;
2-Own a home;
3-Take international vacations;
4-Give to charity;
5-Be financially independent (aka have the flexibility to work less without worrying about money)
What are your top 5 financial goals?
Step 2: Write down a few things you must do to achieve them
Once you determine the financial goals that are most important to you, write down ways you plan to achieve these goals. For me, that means tracking my spending and sticking to a budget. It means saving a percentage of my income each month and investing money towards retirement. If I’m being honest, it also means staying away from the mall so I’m not tempted to buy cute clothes and new dresses whenever my favorite stores are having a sale. It even means forgoing the temptation to buy things online after seeing new home décor ideas on Pinterest. Most importantly, it means eliminating any consumer debt and having the self-control not to accumulate more in the meantime. What are some things you must do to reach your larger financial goals?
Step 3: Choose one thing to change about your finances over the next 6 months
To be honest, I’m eager to become financially independent. I wish I could snap my fingers and erase my massive student loan debt and have millions saved for retirement. Don’t we all? Unfortunately, life doesn’t work that way. Realistically speaking, it will be about 10 years before my student loans are paid off or forgiven. I’ll be well into my 30s before I can comfortably purchase my dream home and in my late 40s before I can truly become financially independent. Although both of those goals can seem far away, there are several things I can do now to put myself in a great position going forward. However, trying to do all of them at once can be daunting and unsustainable.
I’m the type of person that needs to see progress. I need to feel as though the sacrifices I’m making (aka the cute clothes I’m not buying and lavish vacations I’m trying hard not to book) are actually worth it. Thus, I find it helpful to focus on one thing. Choose one change you want to make in your finances over the next 6 months, whether that’s trying not to spend more than $100 on take-out, putting $300 into a savings account every pay period, or contributing 10% of your salary towards retirement. Choose one thing to stick to over the next 6 months. My one thing is eliminating the credit card debt I accumulated in grad school. What is your one thing?
Step 4: Laser focus on that one thing
Once you pick your “one” thing. Laser focus on it. Since I’m someone who loathes consumer debt, I’m laser focused on eliminating it. How? By literally throwing money at my credit card balance each month. As a resident physician, I’m definitely not making the doctor salary people google online, just yet. I don’t drive a Tesla, own a large home, or spend money frivolously without remorse. However, as a single person with no kids, who is an employed physician, I make enough to pay off my credit card debt. In fact, despite having a negligible “minimum payment,” I send in a several hundred dollars each month and should be credit-card debt free by the end of the year. I realize everyone’s financial situation may be different, but we should all laser focus on one thing. In what way do you plan to do this?
My point? Instead of getting bogged down by large goals that seem far off, I have found it helpful to focus on one small goal every 3-6 months. I like to see progress and achieving these small goals will give me the momentum needed to continue along the journey to reaching my larger goals. What do you think? Is this a strategy you believe will work for you?