By Ben Allen III
You’re on it. You’re setting goals, making your milestones, climbing the ladder and gaining respect along the way. You’re an up-and-coming professional – with a teensy, nagging feeling about your own personal finances: Am I making good decisions? Thinking about the right things? Planning for a secure future?
You’re not alone, and those are the right questions to ask! Even if you’re fast-tracking on the road to professional success, taking care of financial planning and personal money matters is equally important.
I’m a banker, and I’m here to help – with my “Top 10” list of things to consider in the important realm of personal finance.
- Build a budget and revisit it frequently. “Yeah, yeah, yeah,” you’re thinking. “That’s nothing new.” But developing a budget is one of the most important steps to take, and one of the building blocks that will help you manage your personal finances. Your personal budget will shed light on current spending habits, help you make better financial decisions, allow you to escape debt if you have it, and help ensure you accomplish long-term financial success.
- Establish a rainy day fund. Most experts recommend having three to six months of expenses in a “liquid” account (such as a savings account) to use for emergencies – major home repairs, a health setback, even a job loss or other major change. Having those expenses available for the unexpected will give you a lot of peace of mind.
- Contribute to 401(k)/retirement funds as soon as possible. Warren Buffet famously said, “Compound interest is the eighth wonder of the world.” Your company’s 401(k) or other retirement plan often will harness the combined power of employer matching, pre-tax contributions, tax-free growth (often via low cost mutual funds) in addition to compounding interest. The sooner you can start the better, and the more you can contribute the better. (For 2021, the maximum you can contribute is $19,500 if you are under age 50.) For more information, check out Bell’s tips on how to make the most of your 401(k).
- Use debt appropriately and make a repayment plan. Whether you are paying on an auto loan, credit card or student loans, it’s time to develop a plan to pay off unwanted debts. If you’ve started writing out your budget, that’s a great time to build your debt-payment plan. Techniques like the “debt snowball” or “debt avalanche” will help you get started paying down debt, and you’ll see progress quickly when you stick to them.
It’s also important to note that not all debt is unhealthy. For example, using a mortgage to buy a home is usually considered “good debt” – you can build equity in your home and add to your financial net worth. Visit Bell’s online advice center if you’re interested in learning more about healthy debt, and tips for which unhealthy debt to pay off first.
- Protect the wealth you’re building. How do you do that? By making sure you have the proper insurance coverage related to life, health, property and disabilities. Insurance and financial firms can point you in the right direction, ensuring you have the right coverage to protect yourself and your family, any businesses you’ve built, and other things that are important to you.
- Write a will. Better yet, consider developing an estate plan that will also include a trust, power of attorney and healthcare directives. Your will may be the most important document you ever write, because it allows you to select the people or charities that will receive your assets if you die. Without it, the state you reside in will generally determine through probate how your assets are divided.
In some cases, a living trust may be a better option than a will, since it could allow you to avoid probate altogether, keeping your financial matters private, while allowing you to control what happens to assets, even after your death.
- Build and manage good credit. Lenders use your credit scores or FICO score – often described as a “report card” of your borrowing history – as a mechanism to assess credit risk. Maintaining a high credit score can save you money, as well as open more lending options. It’s important to monitor your credit scores at the three credit bureaus (TransUnion, Experian, and Equifax) on a regular basis to ensure they are accurate. Interested in learning more about how to “freeze” your credit and more? Yes, we’ve got tips on credit, too!
- Establish a healthy savings habit. While you’re establishing your budget, be sure to include a line item for saving for the future. Once you have your rainy day fund in place, most experts recommend that you aim to save 10% to 15% of your income in highly diversified, low-cost mutual funds. If you have children, consider tax-efficient college savings options such as 529 plans. If you have philanthropic goals, now is also the time to think about saving to fund future giving.
- Avoid “lifestyle creep.” As your income level increases, it’s human nature to adjust your lifestyle to match – with nicer dinners, finer clothing, larger homes, newer cars. I won’t disagree – it’s important to reward your hard work – but think about how you can reward yourself responsibly. Know your debt-to-income ratio (try this calculator) and try to stay below 35%. Personally, if there’s a large-ticket item I want, I often write it down – then wait 30 days before I buy. This prevents me from making an impulse purchase, and I often realize I can live without the item!
- Develop a team of trusted advisors. There are so many kind-hearted, skilled professionals who excel in their specific field. When it comes to retirement, tax planning, investments, estate planning, insurance and banking, I highly recommend finding a team of professionals you know you can trust to keep your best interests at heart. Allow them do the work they are trained to do on your behalf, while you focus on excelling at your own profession.
And … here’s my “Plus-1” tip: Set goals, then reward yourself for achieving milestones. Many of the items on this list require your time, discipline, focus, and emotional attention. Be sure to reward yourself whenever you have accomplished a milestone – whether that’s setting a budget, establishing your rainy day fund, paying off debt, hitting a 401(k) balance, or finalizing your estate plan. They’re all important pieces of your personal finances and financial well-being. Get started today, and get yourself on track.
Founded in 1966, Bell Bank (Member FDIC) is now one of the nation’s largest independently owned banks, with a growing footprint in the Phoenix metro – and a unique “bottom line” philosophy: that having happy employees results in having happy customers. Ben Allen III is a senior vice president and private banker at Bell. He offices in Bell Bank’s Biltmore neighborhood location and can be reached at (480) 909-3931 or firstname.lastname@example.org. This article was written for general information and should not be relied on as tax or legal advice.