Many people erroneously think that financial planning is something to start when nearing retirement; however, the younger you are when you begin development of a financial strategy for your future, the more successful you will likely be.
Early planning forces people to examine their own financial health and spending habits and to examine topics such as:
- Family planning
- Children’s college
- Purchasing a house
When Should You Think About Financial Planning?
Financial planning can begin at any time in one’s life:
- Graduating college
- Buying a house
- Starting a new job
- Getting married
- Having children
- Changing careers
Each of these major life events warrant seeking a relationship with an experienced and knowledgeable financial advisor who can help create a strategy to achieve long-term goals.
Thus, early financial planning equates to many long-term benefits. Here are seven reasons supporting early financial planning.
- Starting Early Means Saving Less: When you start saving early, you end up having to save less because interest compounds, thus earning you more in the long run.
- Starting Early Lets You Overcome Mistakes: Early adulthood comes with many financial decisions and, consequently, can result in many financial mistakes. Without a comprehensive understanding of financial needs and capabilities, you can make mistakes that have long-term ramifications. Starting early and cultivating a relationship with a qualified financial planner can help mitigate the potential damage poor decisions can wreak.
- Starting Early Opens Many Doors: Early financial planning not only reduces the pressure associated with saving for retirement, but it also provides a safety net of capital should you want to change careers, start your own business, or make any other future plans.
- Starting Early Helps You Avoid Unnecessary Debt: Sadly, many people are unaware of what they can afford and how to afford it, and, as a result, far too many of them live well above their means. The practice of taking on too much consumer debt ends frequently with becoming trapped in a debt cycle where debt becomes the norm. Without a concrete financial plan, becoming debt-free is difficult.
- Starting Early Helps You Make Better Decisions About Insurance and Benefits: Nearly 20 percent of all workers will experience some type of disability during their lifetime, with the vast proportion of accidents not work-related, thus eliminating the ability to collect workers’ compensation. According to the Bureau of Labor Statistics (BLS), approximately 36 percent of American workers have short-term disability insurance, and 25 percent have long-term disability insurance. For these individuals, earning disability benefits is not an adequate substitute for income and, consequently, injured workers end up living off their savings to compensate. Starting financial planning early is crucial to identify and patch potential holes in your financial protection strategies.
- Starting Early Provides a Great Example for your Children: Children learn most of their behaviors, ideas, and norms from their parents, and if you are apprehensive, anxious, or disorganized when it comes to finances, chances are they will grow up to be similar. Instead, by having a concrete financial plan and teaching your children how to save, to organize their finances, and to approach money responsibly, your children are far more likely to become financially secure and confident themselves.
- Starting Early Enables You to Enjoy Your Free Time: Free time is becoming increasingly more elusive. Why would you want to spend it all planning for your financial future? By starting the financial planning process early with the help of a qualified financial advisor, you will have a greater ability to enjoy your free time with friends and family, with your career, by vacationing, or by otherwise enjoying life instead of pouring over articles, statistics, blogs, savings calculators, budgeting classes, and the like.
Starting financial planning early has many benefits: from maximizing saving to create a safety net to being able to afford large purchases to ensuring a comfortable retirement.
Todd Wilhoit contributes articles for Investopedia.com. See this one and more here.