I was chatting with some co-workers the other day and I was very pleased to hear that they really had their finances in order, in a way that made YMF proud. We were discussing home ownership, and participating in our company’s employee stock purchase program. I reflected on although many of us are just young professionals, how the decisions we have made early on in with our finances are really setting us up for long term success. It was really empowering me as a financial blogger to keep doing what I’m doing – in an effort to encourage others to make wise financial decisions to get setup for long-term success.

The little things to do now

Getting your finances in order and making wise decisions to get you on the path towards financial success doesn’t have to be a huge endeavor. It doesn’t have to be hard, you don’t have to say ‘goodbye’ to all your fun and you don’t have to budget constantly. In fact, if you start now (the whole point of this article), you’ll be able to do just a little now, instead of a lot later. Here are a few simple things that you should be doing now to set yourself on the right path for long-term financial success:

• Have an emergency fund: It’s not if an emergency will happen, it’s when. Start with $1,000 in a separate savings account (so you’re not tempted to use it) and then build up to 3 months, then to 6 months of expenses. Your future in an emergency self will thank you.
• Contribute to retirement: None of us are going to be able or want to, work forever. Start putting money aside for your golden years now, and put the money in a tax-friendly account (i.e 401(k) or IRA). Start small (i.e. up to the free match if you get one), and keep building up to 15% of your income.
• Save, and automate: Don’t spend all of your paycheck. Aim to spend 75%, save 25%. After contributing to retirement, start moving money into a savings account. Use it for future, big purchases (car, house, grad school, vacation etc). Once your savings account is at a comfortable level, start putting that money into a brokerage account, ideally an index fund. Make this easy on yourself by setting up automatic transfers, either a day or two after you get paid or at the end of the month.
• Buy a house (if it makes sense): Owning a home is a great way for young professionals (and anybody really) to invest in themselves and build equity up in a primary residence that gives them shelter. Instead of paying rent, you’re paying the bank and slowly building equity (i.e. ownership) to live where you live. There are a lot of reasons to buy a house, but many reasons not to (i.e. too expensive, you don’t have the budget for it, don’t plan to stay in the area for a 3-4+ years), so work to save up for a down payment, and buy when the time is right.
• Avoid dumb debt: Take out loans for a house and grad school. Car loans are a gray area for me but I’ll allow it (but won’t do it myself), as long as it’s not a crazy sports car and you get a good interest rate. Don’t get loans for other things. Getting a loan for other things is indicative of either a spending problem (buying too much now), or an income problem (making too little), both of which mean you have bigger problems on your hands and should probably fix those instead of spending more money. Interest rates can be high and interest can be a vicious cycle. Instead, spend what you can afford, and use interest to your advantage (savings account or index funds).

Doing this handful of things isn’t hard and won’t drastically change your life now. It will however set you up for long-term financial success, which will drastically change your life later by giving you financial freedom.

Why do them now instead of later

I hear from a lot of young professionals that doing these types of things is ‘boring’ and they have other things they’d rather spend their money on. Being a young professional is awesome because you’ve still got time (less responsibilities) but now you also have money to spend (courtesy of that paycheck). With that, you’ll probably want to enjoy it (after all, you do work hard) and enjoying often means spending money. Whether it’s eating out (like a lot), going out to bars, buying new clothes, seeing movies, or taking nice trips, there are a lot of fun things to do that you can spend your money on. “I’ll worry about saving/investing when I’m older” is a very common thing I hear. You have two choices – you can either do a little now, or a lot later. Sooner or later you’ll have to save/invest.

The whole reason to do them now is because of the power of compound interest. The gains (whether dividends, increase in stocks, or interest) can go back into your account, and be included in your investments, earning you more the next time around. $100 earning 10% interest nets $10. $110 earning 10% interest nets $11. That extra dollar that you reinvested earns you more. Over time (and time is the key reason to start early), your money will grow at a much faster rate as opposed to saving more later. Go ahead and start now!

A secondary benefit of starting now is the fact that you’ll develop good financial habits. Good financial habits that start now will continue over the long run. It’s much harder to teach an old dog new tricks, and the same with young professionals getting better at managing their money. Go ahead and form good habits now and they’ll stick with you in the long run!

What long-term success will look like

Long-term success will look different for each person, but the beauty of starting now, means that over time you’ll find yourself in a position of financial freedom. Financial freedom means that you get to choose what it looks like, because you’ll have the resources to make the rules! It’s fun imaging and dreaming what it could look like for me, and I hope it’s the same for you. Starting now and developing good habits will allow you to do a little now, instead of over doing a lot later on. It’ll be much easier to save/invest part of our paycheck instead of feeling like we’re behind and having to play catch up!