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Saving as a Young Professional: Give Yourself Options

August 21, 2020
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Client investment meetingBy SJS Advisor Support Associate Catherine Stanley and SJS Managing Director Jennifer Smiljanich, CFP®

Never in a thousand years could we have imagined what it would be like to personally live through the upheaval of this 2020 global pandemic! While there are some silver linings, to be sure, many of us, to some degree, have been affected by feelings of fear, isolation, disruption, limitation, and boredom. Some of us are left feeling a little vulnerable, and it might not feel good.

But sometimes, uncomfortable feelings can serve as a catalyst, and can move us to take action that might not occur during times of “business as usual,” when we may feel happy and at ease. The uncertainty of our world today can open us up to thinking about how we can make our life a little safer, better, or a bit more comfortable in the future. Ironically, one of the greatest things we can do in an attempt to ensure a better future is to acknowledge that something should be done, and to start as young as possible with a plan to make it happen.

The something referred to here is saving and investing for your future. For young professionals in their 20s and 30s, the future, and the idea of retirement can seem very far off and too hard to predict. Not knowing where to start can seem overwhelming, to the point where doing nothing is an easy default.

Although we never know what tomorrow will bring, we do know that our future self will want to be able to choose from options. One of the ways for this to happen is for young professionals to start a savings and investing plan today, so that the power of time and compounding may work on your side. Wise decisions and actions today can often give you more options tomorrow. We hope the uncertainty of this pandemic, and knowing you have someone at SJS to talk to, may nudge you to start your savings and retirement plan. If you’ve already started, well done!

To that end, we will revisit some of the tried and true strategies behind a solid investment plan.

Strategies behind a solid investment plan.

Live within your means

Simply put, spend less than you earn. By doing so, you can save to take care of future YOU! There are many thoughts on how much you should save, but according to George S. Clason, author of The Richest Man in Babylon, at least 10%. Mr. Clason states, “A part of all you earn is yours to keep. It should be not less than a tenth no matter how little you earn. It can be as much more as you can afford.”[1]

There are many good budgeting tools available to help you track how much you are spending to live within your means.[2] If you don’t know how much you spend, this is a good place to start!

Automate your savings / investing so it has priority

For every paycheck, set up an automatic transfer to your savings or brokerage account. Making YOU important enough to come first is very affirming!

Start young, start early, start now!

I mentioned the power of compounding before, and I cannot explain it any better than this powerful graphic. Take a look, and trust that you are doing yourself a huge favor by acknowledging its power and harnessing it for your own good. Save as soon as you can, as much as you can, and let time and interest on interest help build your nest egg!

Be prepared

By doing some pre-planning and using the tools available to you, you can increase the likelihood of staying on track.  

  • Have a Plan B.  Set aside funds in case of an emergency. Ideally, your emergency fund should be between 3-6 months of living expenses, kept in a safe, liquid vehicle such as a savings account or money market account.[3] So when your next “uh, oh” moment comes along, you will be ready.

  • Don’t just save. Invest for retirement.  With investing, you will need to learn about the trade-off between risk and reward. Investments that give you higher returns may potentially get you to your retirement goal sooner, but they inherently come with greater risk. On the other hand, the safest of investment vehicles, such as a US Treasury bill, probably won’t earn enough return to outpace inflation over time. Find the right balance for you! Seek out a CFP® professional or trusted investment adviser to help you set a plan that meets your needs and stay the course. If you have a long-term plan and stick with it, then the daily volatility in the market may be just noise.

  • Maximize your resources.  If your employer has a 401(k)-matching plan, take advantage of it to the greatest extent that you can…matching funds are free money! Consider making IRA contributions if you can. Pre-tax contributions to retirement plans and IRAs may decrease the amount of tax you pay on your income each year, and the funds will grow tax-deferred, compounding over the 30+ years you have until retirement.

  • Start a 529 education savings plan as a way to use compounding to help pay for your child’s college education. There is often a state tax deduction or credit available for 529 plan contributions, varying by state.

Starting your savings and investment journey today means you’ll have to balance today’s current enjoyment with tomorrow’s future enjoyment. Decisions or circumstances along the way may create diversions from the path, but if you have a strategy, you can always come back to it. The goal is to stay on track so that over time, future You will appreciate that you gave yourself options to choose from. At SJS, we are happy to have these conversations with you, and to help guide you to an investment plan for the long term that you can stick with.

 


Important Disclosure Information and Sources:

[1] The Richest Man in Babylon. George Clason, 1926, Berkley.

[2] “10 Simple and Free Budgeting Tools.” Maryalene LaPonsie and Lars Peterson, 21-Jun-2019, money.usnews.com.

[3] “Emergency Fund: What it Is and Why It Matters.” Margarette Burnette, 20-Mar-2020, nerdwallet.com.

Advisory services are provided by SJS Investment Services, Inc.., a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide tax advice. Please consult your tax professional for specific advice. This material has been prepared for informational purposes only. There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.