We live in extraordinary times, and the world of finance is no exception. With the cost of living at an all-time high, education costs soaring, and supply shortages making headlines, it’s no wonder many individuals are feeling unsettled. However, by working together and taking proactive steps, we can attempt to overcome these challenges and work toward a brighter financial future.

5 Essential Steps for Young Professionals

Create an Emergency Fund

Set aside six months of living expenses (3 months for couples with dual incomes) in a high-yield savings account. This fund will provide a safety net for unexpected expenses and help ensure you’re prepared for life’s surprises. A high-yield savings account can provide a competitive interest rate and ensure the funds are easily accessible. Those interested in higher interest returns may find better rates using an online bank, which is also FDIC-insured.

Obtain Long-Term Disability Insurance

According to the World Health Organization, “An estimated 1.3 billion people experience a significant disability. This represents 16 percent of the world’s population or one in six people.”

Your income-earning potential can be your most valuable asset. Check with your employer to see if they provide long-term disability coverage or if you already have it. If not, it’s worthwhile to shop with insurance brokers for a personal policy that replaces at least 60% of your pre-tax income.

Budget, Track Spending, and Pay Off High-Interest Debt

Disciplined budgeting and spending habits are crucial for achieving financial success. Use free tools like Google Spreadsheets or Microsoft Excel or consider budgeting apps like YNAB (You Need a Budget). These tools connect with your spending accounts for real-time spending feedback. Prioritize paying off high-interest debt by focusing on the highest interest rate first and make minimum payments on the other accounts until the high-interest account is paid off.

Build Up Your Retirement Accounts

Save as much as possible for retirement, especially if your employer offers a matching program. If you have an employer-sponsored retirement plan (401k, 403b, etc.), you should contribute up to the employer match (if there is one) at a minimum so you don’t leave free money on the table. When choosing between a traditional or Roth retirement account, consider your current and expected tax brackets in retirement. Generally, if you expect to be in a lower tax bracket in retirement, a traditional account may be preferable. Conversely, if you expect to be in a higher tax bracket, a Roth account may be a better fit.

Diversify Your Investments

Spread your investments across various companies and asset classes to minimize risk. A diversified portfolio can help protect your assets from market fluctuations and company-specific risks. Leaving all of your eggs in one basket can expose your portfolio to higher risks that can be detrimental to your investment returns.

Navigating the complexities of the current financial landscape requires a proactive and informed approach. By following the five essential steps outlined above, young professionals can take control of their financial future and build a stable financial foundation.

This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.

Author Jordan H. Neuschwander Financial Advisor

Jordan earned a bachelor’s degree in financial planning from the University of Illinois at Urbana-Champaign.

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