Financial Planning Tips for Young Professionals
As a finance student in my senior year at the University of Alaska Anchorage, I’ve had the unique experience of creating a small media business and making strategic investments in digital currency to help fund my college education. My goal is to become an expert in the field of finance, so I can help others achieve financial success. I am honored to have the privilege to share our knowledge and help young Alaskans create a solid financial plan, setting them on their own journey toward financial success.
- Set Clear Financial Goals and Save for Retirement
Set clear financial goals, both short-term (such as saving for a vacation) and long-term (such as retirement). Use retirement calculators to estimate how much you need to save and increase contributions over time as your income grows to ensure you’re on track for the future.
- Create a Budget
Establishing a budget is the first step in managing your finances. Given the high housing, utility, and transportation costs, it’s essential to track income and expenses. Use budgeting apps like EveryDollar or NerdWallet, and plan for seasonal expenses, such as winter heating and vehicle maintenance. Everyone’s budgeting needs are different. However, a safe place to start is to aim to save at least 15% of your income and keep your housing payments below 25% of your income. Then, we suggest listing your remaining fixed expenses that occur every month or year with little variance. That should leave you a cushion each month for variable and discretionary spending.
- Build an Emergency Fund
An emergency fund of three to six months’ worth of living expenses is critical, especially for anyone seeking financial freedom. This should be your first savings goal, and it can be simplified by automating your savings to ensure consistent growth and account for the unexpected, which can lead to unexpected expenses.
- Manage Student Debt
If you have student loans, consider federal repayment plans that adjust based on income or make extra payments, when possible, to reduce the principal faster. Research state-specific loan forgiveness programs for professions in education or public service, which can help you pay down debt more quickly.
- Start Investing Early
Begin investing in a 401(k) or IRA as early as possible to take advantage of compound interest. If your employer offers a 401(k) match, contribute enough to receive the full match. A Roth IRA allows young people in their lowest income years to invest for the future, growing tax-free and maximizing the benefits of compounding over time. Diversify your investments across stocks, bonds, and real estate to balance risk while aiming for long-term growth.
- Plan for Housing
Whether renting or buying, housing in Anchorage can be expensive. Renting provides flexibility, but if you plan to stay long-term, buying a home could be a good investment. Be sure to account for ongoing costs like maintenance and higher winter utility bills in either case.
- Manage Anchorage’s High Cost of Living
The cost of living in Anchorage is above the national average, largely due to imported goods and high transportation costs. Limit unnecessary spending and take advantage of affordable outdoor activities like hiking the beautiful Flattop Mountain trail or skiing down the epic Mount Alyeska. Plan for elevated winter expenses like heating and vehicle maintenance.
- Use the Alaska Permanent Fund Dividend (PFD) Wisely
The annual PFD provides a financial boost for Alaskans. Use it strategically by investing it, paying off debt, or boosting your emergency fund. By investing this money, you can make significant progress toward long-term financial goals.
- Protect Your Assets with Insurance
Proper protection can help keep your goals and budgeting work on track. Ensure you have health, home or renters, and auto insurance to protect your financial health in the event of accidents or weather-related damage. State minimums are often insufficient for auto insurance, and you should consider increasing your coverage. In addition, umbrella insurance is usually very inexpensive and recommended, even for those with fewer assets.
- Seek Professional Financial Advice
Consulting with a financial advisor can help you navigate complex topics like taxes, investments, and long-term planning. Here at Alaska Wealth Advisors, we can provide guidance tailored to your unique challenges and circumstances.
By leveraging a budget, managing debt, investing wisely, and leveraging unique opportunities like the Alaska Permanent Fund Dividend, young professionals can lay the groundwork for a secure financial future. As someone who has navigated these financial waters to fund my own education and future goals, I understand the importance of careful planning. It’s been a rewarding journey, and I’m excited to help others take control of their financial paths. We are here to provide the guidance and tools necessary to help you succeed. Together, we can navigate the challenges of higher costs of living and unlock the opportunities that will lead you toward your own financial success.
Japheth Taylor
Wealth Management Intern
Sources:
Point 1: Fidelity’s retirement Calculators Can Help You Plan Your Retirement Income, savings, and Assess Your Financial Health. Fidelity. (n.d.). https://www.fidelity.com/calculators-tools/retirement-calculator/overview
Point 2: Schwahn, L. (2024, September 12). How to Budget Money in 5 Steps. NerdWallet. https://www.nerdwallet.com/article/finance/how-to-budget
Point 3: Bennett, K. (2024, February 29). How to start (and build) an emergency fund. Bankrate. https://www.bankrate.com/banking/savings/starting-an-emergency-fund/
Point 4: Lockert, M. (2024, February 25). The Ultimate Guide to Student Loan Repayment Options. Student Loan Planner. https://www.studentloanplanner.com/student-loan-repayment-options/
Point 5: How to start investing: A guide for beginners. Vanguard. (2024, August 2). https://investor.vanguard.com/investor-resources-education/article/how-to-start-investing
Point 6: Anchorage, AK Housing Market. Zillow. (n.d.). https://www.zillow.com/home-values/23482/anchorage-ak/
Point 7: Cost of living in Anchorage, Alaska. Payscale. (n.d.). https://www.payscale.com/cost-of-living-calculator/Alaska-Anchorage
Point 8: https://pfd.alaska.gov/
Point 9: Consumer Services. State of Alaska Department of Commerce, Community, and Economic Development. (n.d.). https://www.commerce.alaska.gov/web/ins/consumers.aspx
Point 10: Start Your Journey to Financial Success. Alaska Wealth Advisors. (n.d.). https://akwealthadvisors.com/
