On Your Own

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3 Common Questions From Young Professionals


We often see new clients coming to us as they move from one life stage to another. Starting a new job, getting married, having kids, preparing for retirement - these different life stages bring up different financial questions. Over the next few weeks, I want to explore some of the most common concerns and questions I hear from people in each most common life stage.

Today, I'll be focusing on recent grads and young professionals. These are the folks who are on their own for the first time, trying to figure out how to pay bills, have some fun, and start thinking about the future - maybe.

1. What often drives people to first seek financial help is that harsh reality that hits after graduation: how do I pay off my student loans? While there is no one-size-fits-all approach to tackling this type of debt, there are options for refinancing, consolidating or deferring. We can sit down with you and go over your income (and income potential), other debts, goals, bills and lifestyle to help you find the right direction, as well as help you determine whether to take the snowball or avalanche approach to payments.

2. I have credit card debt - is it okay to focus on that before maxing out my employer 401(k) match? We hear this question over and over again as young professionals are offered their first employer-matched retirement plan. I almost always recommend that people knock out their credit cards aggressively, as these typically come with high interest rates and other fees, but I also don't want to see people leave free money on the table.

I encourage my clients to think of employer matches like this: getting a match is essentially 100 percent interest on the dollars you contribute. Any extra money you can find to contribute essentially results in a free bonus.

But, there are different ways of approaching credit card debt and paying it down. We can help you determine the best strategy for you. Typically, I'll encourage clients to contribute a little less to their 401(k) while they work on paying off credit cards, and then increase to the full match or beyond once the cards show a zero balance.

3. If I open an investment account, are there penalties if something comes up and I have to withdraw money? Before starting to invest, we always, always encourage people to have that glorious emergency fund that we always talk about. We hate to see folks dip into any kind of investment account if they don't have to. A "non-qualified" individual investment account doesn't come with the same tax advantages as a "qualified" account (think traditional or Roth IRA), but, to answer the original question, no, it doesn't come with the same IRS penalties for withdrawal. Over the long term it is generally preferred to have a good portion of your investments in a qualified account, but adding an extra bucket in an individual account can be a good long term strategy too.

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