According to The 2019 TIAA Institute-GFLEC Personal Finance Index, an annual financial literacy assessment, a significant number of Americans lack the kind of personal finance knowledge that enables sound financial decision making. On average, U.S. adults could correctly answer only about half of the 28 questions on basic financial concepts including saving, investing and borrowing.

Over the course of my career in wealth and investment management, I have often been surprised to see how many smart, successful professionals outside of the finance industry are uninformed about how to manage their money. In some cases, their financial lives can be very complex, and there are reasons they’re seeking help and guidance. But there are actions individuals can take at every step of their lives to better understand and manage their finances. I’ve written before about the importance of compassion; I like to think of good personal finance as a compassionate and respectful act toward one’s future self.

Of note, the global pandemic and resulting economic crisis has and will continue to impact individuals differently. While I’m mindful that personal finance is not solely about financial literacy or management (after all, how can one manage an income that doesn’t exist?), I still thought it worthwhile to share some high-level tips for those looking to learn how to better manage their finances and, ultimately, amass wealth throughout their professional careers. And in honor of my company’s Bay Area roots, I’ve aligned them with the well-known growth stages of the Silicon Valley tech scene: from startup to Series B to the coveted unicorn status.

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The startup stage: Get your financial future off the ground.

For those in the early stages of a career, managing personal finances is about laying a strong foundation for long-term success. First and foremost, focus on paying off debt above all other priorities. Your investments could be performing above average, but if you are carrying a credit card balance or other high-interest-rate debt, the interest fees are likely to add up faster than the returns on your portfolio and effectively erase those gains.

Those who are debt-free should establish an emergency fund: put away a portion of each paycheck in a savings account until the funds are sufficient to cover at least three months of living expenses. Additionally, now is the time to learn about your investment options and start investing for retirement — even if at first you can only afford to make small contributions to a 401(k) or similar retirement account. Because compound interest builds exponentially, even investing a small amount in your 20s and 30s can have an outsized impact. Plus, when you start early, it helps make saving feel natural.

The Series B stage: Make the most of steady growth.

As your career advances and your salary increases, so should your retirement contributions. Earning enough income to “max out” your 401(k) is a sign of good progress — and also means it’s time to consider opening additional investment accounts. Due to the government-mandated cap on how much 401(k) plan participants can put into those accounts per year, a 401(k) alone will not generate enough return and growth to fund a financially secure retirement for most people. Opening an additional brokerage account for retirement investing while continuing to contribute the maximum amount to your 401(k) can help reduce the possibility of a financial shortfall during retirement.

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Individuals at this stage in their careers should also beware of lifestyle creep: the temptation to spend more money because you’re earning more money. To borrow a term from the startup world, a good rule of thumb is to figure out your minimum viable paycheck (MVP) — in other words, the minimum amount of money you need to meet your fixed living expenses. Then save or invest half of every dollar you earn beyond that MVP amount. Establishing responsible financial habits is especially important at this stage when many young professionals are not only climbing the ranks at work but also thinking about lifestyle milestones, such as getting married, buying a first home and/or starting a family. As an added benefit, knowing your MVP amount is useful during times when the world is tumultuous and your income might change.

The unicorn stage: Customize a long-term financial plan.

In Silicon Valley, a unicorn is a privately held startup valued at more than $1 billion. Like the mythical creature after which it is named, a unicorn company is rare and revered. But when it comes to personal finance, you don’t have to be worth a billion dollars to achieve my definition of unicorn status. All you need is a financial plan customized to fit your unique personal balance sheet and income statement. Believe it or not, a large number of highly successful professionals in fields from medicine to professional sports to tech never take this step.

A financial plan may not be magical, but it can absolutely be powerful. Your financial plan is the road map to keep you on track for achieving short-term goals, such as paying for a child’s college tuition, and long-term goals, such as funding your retirement. It also empowers you to weather even unforeseen difficulties such as global pandemics and to think beyond your current wants and needs to envision a legacy. In the current pandemic, does your MVP and financial plan allow you to donate to causes you care about? And in your legacy, will you leave money to children, grandchildren or other loved ones? Will you establish a charitable foundation or make a grant to support a cause about which you are passionate?

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Fortunately, having the foresight to set goals, develop a plan and invest in the future need not be as rare an achievement as transforming a startup into a unicorn. But the rewards for investing in a future that honors your values and goals can be just as meaningful.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.



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