When you hear the term “financial planning,” what comes to mind? Do you immediately picture meeting with a retirement planner and talking about your investment portfolio or estate plan? Those are two important aspects of financial planning, but they aren’t the only ones. You don’t have to be wealthy or ready to retire to take control of your money.
One of the best things you can do is learn how to manage your money well throughout life. If you’re a millennial or Gen Zer, you might not feel ready to create a rigid retirement plan. But that doesn’t mean you can’t benefit from financial planning.
In fact, it’s often better for younger people to have a more flexible viewpoint on their finances. This can change so quickly when you’re young, and your financial priorities may shift several times before you’re ready to start planning for retirement.
So even if you’re not ready to discuss retirement or build a complicated investment portfolio, you can still take some proactive steps to get a handle on your money.
Step #1: Be Prepared for the Variables to Change
By the time you’re nearly ready to retire, you’ll probably have a fairly set financial plan with minimal room for change. But what if you’re just starting your first “real” job? Or what happens if you’re a few years into your chosen career, and you realize it’s not the right place for you? What should you do then?
For most people, it’s not realistic to create a set-in-stone financial plan when you’re 20 or even 30. There are just too many variables. Maybe you’ll decide to change careers, or you’ll have to deal with a layoff. Your family could grow or you might end up bringing an aging parent into your home to care for them. The market could keep experiencing “once in a lifetime” events that cause inflation and instability.
You can’t predict everything, but that doesn’t mean you can’t prepare. It just means that your plans need to be flexible so there’s room to react when things change. For example, you could take the money you budget for “saving” every month and split it between your retirement account and an emergency fund. That way, you can plan for the future but still have some easily accessible cash if you need it for an unexpected event, like a medical emergency or job loss.
Step #2: Look at the Near Future
The core of financial planning is looking ahead and planning for the future. Traditionally, the focus is on the far future: retirement. But with all the unknown variables, it might not make sense for you to make all your plans based on what you think your life will look like two or three decades from now.
Instead, focus on figuring out the right financial decisions for the near future. That doesn’t mean you shouldn’t think about retirement. Instead, look at retirement in general terms and focus on making specific decisions for the next few years.
For example, maybe your retirement planning right now just means contributing enough to your 401(k) to max out your employer’s matching program. All the other specifics of your financial plan may be focused on the next few years: saving for a house, paying off your student loans, starting a family, or achieving whatever goals are important to you.
Step #3: Decide How to Allocate Your Resources
Planning for the near future when you’re young is mostly about figuring out how to use the money you have right now. You have many options, and it may seem overwhelming trying to decide exactly how you should spend, save, invest, and give your money. But you can simplify those decisions by narrowing things down to two main points: your values and your resources.
First, decide what’s important to you. If you have a partner, make sure to talk about your values together so you can create a shared list of priorities. Then, look at the financial resources you have, and decide how to use them based on your values. Make the decisions that are right for you, even if they don’t follow conventional wisdom. If buying a house isn’t a goal that you have, don’t save for a house!
Step #4: Find the Best Way to Navigate Uncertainty
By the time you retire, you’ll have saved a certain amount of money and will probably have a pretty decent idea of what your living expenses will look like for the rest of your life. But your financial situation right now isn’t set – it’s fluid and always subject to change.
Right now, the best thing you can do is figure out how to navigate financial uncertainty. Many circumstances or events can affect your finances, and you can’t always predict if or when those things will happen.
You might have to cope with a difficult challenge, like losing your job or getting injured in a way that impacts your career options. Or the opposite could happen — maybe you’ll unexpectedly inherit some money or land a big promotion years earlier than you expected. Whatever happens, the key is to learn how to navigate those new financial waters.
Focus on Making the Next Right Decision
The world is complicated and changing quickly. Many young people are facing financial challenges that their parents and grandparents never had to deal with. It’s easy to feel discouraged by the economy, inflation, and the housing market.
But it’s not hopeless. Being young means you have a lot of freedom – you don’t need to have your entire financial future planned out with no wiggle room. You can decide what to do with your money right now, and you can adapt in a few years if your family, priorities, job, or circumstances change.
Want to get your finances on a firm foundation? We’ve got you covered with our DIY Financial Planning Checklist. This free resource walks you through every part of your finances to help you identify your priorities, set goals, and make sure you’re on the path to reaching them. Are you ready to feel confident managing your money? Download your DIY Financial Planning Checklist today!