By The Welch Group
Having a good understanding of personal finance is crucial to experiencing financial freedom and success. The sad truth is that financial literacy is not typically taught in schools or families, leaving individuals responsible for learning about and implementing sound financial habits throughout their lives, from their first post-college job to retirement.
As a young professional who may be newly launched into your career, you likely feel excited to earn more money. It’s a new time of life where you can access financial resources in a way you never have before. As tempting as it may be to spend it on your wish list,, now is the perfect opportunity to create healthy financial habits, allowing you to achieve the financial freedom you’ve always envisioned
Here are a few insights created by our team to help guide your steps toward a healthy relationship with money so you can stay on track through your working years toward a comfortable retirement.
Spend Less, Save More
It’s easy to get caught up with buying the next best thing. And if you are not careful, this carefree behavior can evolve into spending habits based on “keeping up with the Joneses” instead of careful financial planning.
Some people in their 30s come to me strapped with credit card debt they regrettably took on in their 20s. They feel frustrated to still be paying off the debt they incurred when they were younger instead of investing in their future. It’s always good to implement good spending habits early in life, which may mean holding off on non-urgent purchases and building into your savings account.
Invest Early, and Let Interest Compound
As the old saying goes, the best time to invest is yesterday, and the next best time is today. The single best thing you can do to have enough money to retire comfortably is to invest early and often.
Compounding interest refers to the practice of reinvesting the interest earned on an account, thereby creating a cycle of increasing gains over time. It allows not only the initial investment to generate earnings but also the reinvested interest to start working for the account holder over time.
For example, if you saved $6,500 each year (which is currently the annual Roth IRA contribution limit in 2023) from ages 25 to 60 and invested in a portfolio that averaged annual returns of 7.5%, you could have over $1 million dollars in tax-free money.
By taking advantage of time and compounding interest, you can experience the best and fastest way to move toward your goals and have the resources you need for a solid and stable retirement future.
The investment strategy known as dollar-cost averaging (DCA) reduces the impact of volatility when buying or investing a large amount of a financial asset. It minimizes volatility risk by attempting to lower the overall average cost of investing.
Rather than make one single lump-sum investment, DCA involves dividing the amount into smaller sums and regularly investing them at predetermined intervals until the entire amount is invested.
By using DCA, the risk of investment can be reduced, and capital can be preserved to minimize the impact of a market crash. This approach also helps to maintain liquidity and flexibility in managing an investment portfolio by preserving your funds.
Create a Financial Plan and Adjust it Accordingly
Many people mistakenly see the creation of a financial plan as extraordinarily complicated, but it doesn’t need to be. In fact, your financial plan when you are younger can be as simple as creating a budget, sticking to it, and investing for your future goals, such as retirement.
Many people also mistakenly see a financial plan as set in stone. However, once you establish a financial plan, you can and should review it frequently and adjust it to match your new financial situation, especially as your career evolves. Financial plans and wealth management strategies will shift with you and your family over time. Perhaps you are making a better salary and want to invest more toward your retirement, or maybe you want to invest in real estate. Your financial plan needs to be fluid to account for life changes.
Partner With a Trusted Professional
Developing healthy financial habits early on is crucial and can set you up for future success, but it’s also never too late to take charge of your wealth management. At The Welch Group, we’re here to assist you in pursuing your financial goals during your working years and as you approach retirement. To learn more about what we do and how we can help, explore our website and schedule a complimentary consultation.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC [“Welch”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Welch. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Welch is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Welch’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.welchgroup.com. Please Note: Welch does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Welch’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.