STUDENT TALK Financial Planning: Where do I start?
My original plan with this post was going to be an introductory breakdown of retirement plans. I wanted to define all the existing options and put them in a digestible format for my fellow young people to read. The hope was that it’d make retirement planning less intimidating. But, as soon as I started getting into the thick of it, I realized that retirement options are plentiful and varied and too complex to summarize without losing the essential details. Due to that fact, and my desire to provide information that is useful rather than too generic to make a difference, I’ll be including a few links to retirement planning guides I found comprehensive and helpful while researching. This post will focus on the importance of financial planning itself.
According to a 2019 Bankrate article and 2017 CareerBuilder survey, “almost 80 percent of Americans [live] paycheck to paycheck” and “low-income Americans were least likely of the various income brackets to report working on their finances.” The article also mentions that, when dealing with financial hardship, people tend to have tunnel vision on that problem. Unfortunately, when it’s needed most, they can’t find the mental bandwidth to deal with finances beyond the immediate problem. If your most immediate concern is having enough money for groceries, rent, and utility bills, you’d be hard-pressed to also think about saving money for retirement. Makes sense. Who wants to think about the future when they don't have money for food today? Similarly, if you’re a young person who doesn’t understand much about personal financing, it can feel overwhelming just thinking about how to get started. But taking that first step, even if it’s just a small one, say looking into options available via a new employer, or setting up an IRA Certificate account with your credit union, can get you moving in the right direction.
Educate Yourself at Your Own Pace
One good first step is learning. And as we all know, learning takes time. It doesn’t have to be an information dump all in one go. In fact, that's probably pretty counterproductive. Personal finance is a skill you acquire and hone over time. And with the economy being what it is, personal finance is a life long study. My other posts on banking, credit scores, healthcare costs, and renting and loans are pretty lengthy reads. I hope you treat them more as foundational guides to come back to when a question on finances pops up. Sometimes just knowing the resource is there helps your brain deal with something as big and multi-faceted as finance. To give a few personal examples of similar resources, I’ve found sites like Investopedia and NerdWallet to be great for explaining complex financial topics. If an issue comes up, I know I can go there and read more in language that makes sense to me. I hope you see this series of blog posts in the same way.
Break Down the Big Goals
The actual act of dealing with finances can be taken on in similar fashion, small steps. If you have a long-term goal of paying off your student loan debt, think of ways to break it down into smaller monthly goals. Maybe set budgeting goals accordingly: “I will cut back on eating out X times a week, so I can save Y amount. I’ll put Z amount of what I save towards my student debt each week.” Or maybe for you it's each month, or biweekly. The point isn't how frequently you do it, but to have a plan and stick to it.
Another point I like in the Bankrate article metnioned above, is the idea of setting reasonable goals for you and your financial situation. Sure, experts may recommend you save 15-20% of your salary, but if you live paycheck to paycheck, that expectation may seem like an unreasonable (and unhealthy) financial decision to make. Instead, consider saving what you can. Do you find that you consistently have $5 leftover once you’ve spent your paycheck on necessary living expenses? Then save that! Once the money is put away in a savings account or a jar in your bedroom, that financial cushion can help you out with unexpected life expenses or emergency costs down the road. But make sure you're using it for true emergencies. A sudden urge for pizza when all money is spent isn't really an emergency. And don’t forget the pay-yourself-first method outlined in Nerdwallet. This allows you to build your budget around your goals, but leaves room for those necessary expenses like food, shelter and clothing. And in this case, you can plan to have money for that Friday Night Pizza Night thing. But true adulting involves more than that, doesn’t it? If you feel you could use a little help with all of this, it might be time to consider a Financial Planner. You don’t need a high income and lots of money to benefit from their expertise.
Financial Planners: Who are they?
Financial planners exist to answer the personal financing questions unique to your situation. While traditional financial planners may be beyond your paygrade, there are budget-friendly options. There are even people who do pro-bono work to assist people coming from low-income backgrounds. If you’re unsure where to start looking for a financial planner, Google can be your best friend. For example, Nerdwallet offers this post on “free or low-cost financial advice.”
The bank or credit union you go to can also provide tools to help you and refer you to financial planners. MIT Federal Credit Union offers a variety of investment and retirement financial planning options through their partnership with LPL Financial*. Or you can take advantage of a DIY planning program. The credit union also offers their Money Management program to all members for free. It lets you set goals, monitor balances, and manage all your finances in one place, even if they're not all at the credit union.
One good thing to know when looking for a financial planner is asking for their Form ADV. A Form ADV is a free key disclosure document that investment advisors must file with the relevant government authorities. It can give you some informational details about the advisor, but also give you a rundown of the services they provide, the types and number of clients they’ve served, their fees and billing practices, their work history, and any disciplinary action on their record. You are also more than welcome to ask them for their certifications and if they can explain a financial topic to you. If you feel like a financial planner is hesitant to give you this information, it’s probably best for you to take your business elsewhere. And it's important to feel a connection with your financial planner. You'll be discussing a lot of personal information so it should be someone you feel you can trust, and who understands you and your life.
Once you’ve settled on a financial planner you trust, or a system you feel comfortable with if you're not ready for a planner, be honest about your situation. Planners are meant as a resource to support you and empower you to make financial decisions in your best interest. And if you're using an online planningn tool, not being honest means you're not being honest with yourself. How is that going to get you anywhere? With the right tools and support, you can accomplish the goals you set for yourself.
Retirement Planning Resources:
*Financial planning offered through Northeast Planning Associates, Inc. (NPA), a registered investment adviser (RIA). Securities and advisory services offered through LPL Financial (LPL), a RIA and broker-dealer (BD), member FINRA/SIPC. Credit union is not a RIA or BD. Insurance products offered through LPL or its licensed affiliates. LPL registered representatives offer products and services using MITFCU Investment and Retirement Planning. These products and services offered through NPA, LPL, or its affiliates, which are separate entities from, and not affiliates of the credit union, are:
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The LPL Financial registered representatives associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.
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