Getting Down to Business

No one is immune to the effects of this recession. Here are five financial tips for today’s young professionals.

You’re young, ambitious and talented, and you have a five-year plan to get into the corner office. Life is good, your shoe collection is on its way, the people at the local coffee shop know your drink by heart – and you’re right on track for the career you always wanted. But how much of that diligence do you apply to your finances?

Let’s face it. Today’s economy is challenging for everyone. But for those just starting out in their careers, it may be especially daunting. There are so many questions. Buy vs. lease or rent? Save vs. invest? Take a risk vs. protect what you already have? The list is endless.

Start taking stock and building a responsible foundation by asking yourself these five basic questions:

1. What am I really spending every day? For one month, keep track of every dime you spend: mortgage or rent, insurance, car or student loan payments, food, fun, utilities, gas, retirement plan contributions – even your daily coffee habit. At the end of the month, set up a monthly budget. Figure out your imperative payments each month, set as much aside to save as you can (cash in hand is more important now than ever), then prioritize and fine-tune the rest of your spending. Do you really need a soy latte every day, or can you make do with java from the office coffee pot?

2. Do I have a safety net – and is it enough? Having a cash safety net is always important but even more so in today’s economy. Experts have recommended having three to six months of living expenses accessible at all times, but that number is growing to nine to 12 months now – when interest rates are declining and credit is difficult to obtain. Although it’s nice if support from family and friends is available if you lose your job, don’t count on them for everything. You can do it!

3. What insurance is right for me? It goes without saying that health, car and home/rental insurance are necessities, but what about life insurance or disability insurance? First, take advantage of whatever your employer has to offer – life insurance, disability insurance, matches for retirement plans – and figure out what you’re really getting and what you actually need. “For example, if you only have access to group disability insurance at work, be aware of its limits,” says Judith Bramson, assistant vice president of health and executive benefits at Massachusetts Mutual Life Insurance Co. (MassMutual). “Most plans only cover half a paycheck after taxes. You may want to consider additional individual or supplemental coverage to protect what may be your biggest asset today – your income.”

4. What documents do I need to keep? In today’s online world, many important documents are now accessible at a click of a finger within moments or days. However, this level of accessibility should not take the place of being responsible for records in the event of an urgent need. A typical list of items to keep in a safe place include checking and savings account statements, retirement account statements, insurance policies, titles to real estate, tax records and credit reports.

5. Whom do I listen to for advice? Friends and family members are always good for advice, but be sure to contact a financial professional to help you with your unique and changing needs.