6 Important Financial Decisions Young Professionals Face
Young professionals who have recently graduated from college and landed their first “real” jobs have more decisions ahead of them than they may have had at any other time in their lives. With today’s tough economic situation, especially for African Americans who still earn about 75 cents on the dollar compared with white professionals, making the right choices is more crucial than ever.
If you’re starting your life and want to keep your future bright and financially stable, think carefully about these six important financial decisions:
1. Where to live
Obviously, where you can find work will have plenty to do with where you live, but too many young professionals are afraid to break away from home or are not open-minded about their options when they’re job searching. Where you live will make a big difference in the types of jobs available to you, as well as your cost of living.
Recently, Forbes magazine listed Des Moines, Iowa, as the #1 destination for young professionals because of a high concentration of job opportunities, as well as lower startup costs for entrepreneurs. Other top cities included Little Rock, Boston, and Austin. While you certainly don’t have to stick with someone else’s list of the best places to live, you should definitely consider your options and do plenty of research on cities you might move to.
2. How to repay student loans
With only 39% of black bachelor’s candidates completing a degree within six years according to a Demos chart, many young black professionals have a huge load of student debt to pay over several years.
Deciding how to repay student loans is a major financial decision. Look at all the options available for government loans, from standard repayment to graduated repayment to extended repayment. Your best bet is to get rid of your loans as quickly as possible so that you’ll have more money to invest. But if you’re struggling financially now, you can choose a repayment (or forbearance) option that will leave more money in your pocket at the end of the month.
3. Whether to rent or buy
Buying a home is a huge decision, one that you shouldn’t take lightly. You should run the numbers through an online calculator or two to see if renting or buying is better for your financial situation.
In general, if you don’t have a 20% down payment or you aren’t planning to be in your home for at least five years, it’s best to just keep on renting. And there’s nothing wrong with that! The key is to examine all angles of your situation carefully and to make the choice that suits you best.
4. How to save for retirement
Retirement may seem like light years away, but it will be here before you know it. So it’s best to begin a habit of saving for retirement now, even if you can’t contribute the recommended 15% of your income.
Again, there are tons of options available when it comes to saving for retirement. Take advantage of company-matching retirement savings options first, and then meet with a financial advisor to determine what other savings vehicles are right for you.
5. How to spend and save
Now is the time when you’ll establish saving and spending habits that will stick with you for the rest of your life. Will you be the person who has used up your credit cards by the end of the month, or will you be the person who is always saving for a rainy day?
It may take a while to ease your way into striking a balance between saving and spending. You don’t have to live like a hermit, but you also shouldn’t spend every dime you earn so you can drive a nice car and go out with your friends all the time. The best way to establish good habits in this area is to start creating a written, zero-based budget at the beginning of every month, and stick to it.
6. When to move up or move on
Finally, as a young professional, you’ll be faced with many career-based financial choices. The thought of losing your job by pushing too hard to rise to the top can be scary, especially with the jobless rate among blacks in their twenties and thirties higher than jobless rates among the rest of the nation. But if you’re never giving thought to moving up in your career – or moving on to a new job – you’ll never get anywhere.
Each year, take time to evaluate where you are in your career and where you’d like to be by the next year. Spend time talking with employers and mentors who can help you get where you want to go. And don’t be afraid to take some risks when it’s time to move up or move on so that you can grow your income and have a great financial future.
As a young black professional, the world of finances can be challenging. You’re probably paying off debts and just learning to manage your own money. But by getting these six decisions right, you’ll be off to a great start!