Financial planning is the process of looking at your financial picture at a glance, and usually, a professional advises clients on how to achieve their goals. Sovereign CPA is Birmingham’s go-to for financial planning, estate planning, and much more. If you want to learn more, we’re the best place. Here, we will discuss when you should start financial planning and how to do so.
If you need assistance with financial planning or estate planning in Birmingham, contact Sovereign CPA online or call (205) 402-4245 today.
When to Start
When You Start Making Your Own Money
The first time you should start financial planning is once you start earning, regardless of age or income. Of course, there is nothing wrong with celebrating your first paycheck! But years down the road, you will be happy that you started on the right foot by planning ahead.
By taking up financial planning now, it is easier to spend wisely, stray from credit cards, and maintain healthy financial habits.
The Second Best Time to Start Is Now
If you have already started working, there is always time to look into financial planning. Even if you have made some mistakes along the way with spending or lack of saving, you can still make changes, even if you don’t know your best options. Any questions or concerns you have should be approached with well-structured financial planning offered by a professional at Sovereign CPA.
A Guide to Get You Started
Set Financial Goals
Before sorting out your plan, you must ask yourself the following:
- What kind of goals do I want to achieve?
- Why am I saving my hard-earned money?
- What is it that I want the most out of my money?
Having clear goals can make it much easier to maintain discipline, stay on top of finances, and manage to spend.
Create a Budget
Consider your budget a monthly cash flow and savings/investing plan. In simpler terms, set aside a number of earnings that is dedicated to paying bills and another number that you can spend on yourself. By doing this, you will know how much you can spend in a month. It could also be helpful to make a note of your spending every time you make a purchase so you know where your money is going.
Plan for Taxes
Planning for your taxes can help you get the most out of the following year’s tax return. You can always work with a financial advisor, who will provide a tax planning worksheet. These worksheets run through potential income tax credits and deductions. Paying your taxes can be tricky without guidance, so don’t hesitate to call on help from a professional!
Build Your Savings and Emergency Fund
You never know when an emergency could happen, so it is always a good time to start looking at how you can build a savings or emergency fund. When deciding how much to put into your savings, it is important to think about the following:
- How much money are you left with after paying the bills?
- How much can you comfortably put in?
- How much you make.
A good rule of thumb is to put some money into your savings biweekly or monthly, even if it’s just a small amount. After all, something is better than nothing! It is also essential to take into account estate planning. Contrary to popular belief, estate planning can be started at any point in life and should be started before the later years of your life. Estate planning is important, as it directs your belongings to specific individuals of your choosing. If you need assistance with estate planning, contact Sovereign CPA today.
Plan for Retirement
Even if it is a long way off, it never hurts to prepare for the future. When planning for retirement, it is important to think about what you want and need your money for when you stop working. After identifying these goals, you can proceed with creating a financial plan to make those goals happen, as well as begin estate planning.
Talk to Our Estate Planning Professionals in Birmingham
Here at Sovereign CPA, we firmly believe that financial planning is the first step toward success for both individuals and businesses. If you want to reach your goals and thrive, our Birmingham consultants are here to help. Contact us today or call (205) 402-4245 to learn more.
FAQs
The first time you should start financial planning is once you start earning, regardless of age or income. Of course, there is nothing wrong with celebrating your first paycheck! But years down the road, you will be happy that you started on the right foot by planning ahead.
At what age do you make your best financial decisions? ›
Financial literacy refers to understanding money management basics like inflation, interest rates and portfolio diversification. According to the results, financial literacy peaks at age 54 on average then slowly declines from there.
At what age should you start investing your money? ›
Best Ways to Invest in Your 20s
Retirement probably isn't top of mind for most 20-somethings, but getting an early start allows you to save more over the long haul. If you invested $300 per month beginning at age 25, you'd have over $792,000 by the time you turned 65, assuming a 7% average annualized return.
Should I get a financial planner in my 20s? ›
Your twenties are the best time to establish healthy financial habits and start planning for the future, whether it's putting aside money for retirement or buying a life insurance policy.
What age are you financially stable? ›
If you start early enough—say, in your 20s—and follow the steps listed above, you may become financially secure by the time you reach your 30s. If you're older, all isn't lost. You can still reach your financial goals as long as you have a plan and adhere to it.
Where should you be financially at 25? ›
20k is the ideal savings amount for a 25 year old
“Ideally, your savings should reach $20,000 by the time you turn 25,” says Bill Ryze, a certified Chartered Financial Consultant (ChFC) and board advisor at Fiona. The national average for Americans between 25 and 30 years of age is $20,540.
What age should I be financially independent? ›
While humans are known for being among the slowest creatures on Earth to reach maturity, many financial professionals suggest parents should typically plan for an empty nest as their children approach their twenties.
How much money should a 25 year old have? ›
By age 25, you should have saved at least 0.5X your annual expenses. The more the better. In other words, if you spend $50,000 a year, you should have about $25,000 in savings. If you spend $100,000 a year, you should have at least $50,000 in savings.
What age is too late to start investing? ›
It's never too late to start investing, but starting in your late 60s will impact the options you have. Consider Social Security strategies, income sources and appropriate asset allocation. A financial advisor may be able to help you project out your investment and income plan into the coming decades.
How much money should a 15 year old have saved? ›
“A good rule to live by is to save 10 percent of what you earn, and have at least three months' worth of living expenses saved up in case of an emergency.” Once your teen has a steady job, help them set up a savings program so that at least 10 percent of earnings goes directly into their savings account.
Many experts agree that most young adults in their 20s should allocate 10% of their income to savings. One of the worst pitfalls for young adults is to push off saving money until they're older.
How should a 20 year old budget? ›
Allocate a specific amount to each expense category, ensuring that your income covers your essential needs first. You should also aim to save a portion of your income each month, ideally around 20%, if possible; however, if that's out of reach, remember anything is better than nothing.
Is it normal to struggle financially in your 20s? ›
Most people, even in their mid-to-late 20s are still struggling to establish themselves. That can be hard to do if your job isn't paying you enough, you're struggling to make rent, have no savings, and are being crushed by debt.
How many 23 year olds are financially independent? ›
A new Pew Research Center analysis found that 55 percent of 18- to 34-year-olds are not completely financially independent of their parents. This differs by age, with young adults in their 30s the most likely to be completely financially independent of their parents.
What is the 50 30 20 rule? ›
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.
How many 25 year olds are financially independent? ›
45% of young adults say they are completely financially independent from their parents. Among those in their early 30s, that share rises to 67%, compared with 44% of those ages 25 to 29 and 16% of those ages 18 to 24.
Should a 14 year old start investing? ›
There are many reasons why teens should invest. The most significant advantage is the time they have to allow their investments to grow and increase in value. Sometimes it might seem confusing where to begin, but it does not have to be.
Is 25 too old to invest? ›
Here's the real truth: It's never too late to start growing your money. And while time does matter when it comes to investing, it doesn't need to matter in the way you might think. You may be surprised at the impact just a few years can have on your savings.
Is investing at 16 good? ›
Getting started with investing as a teenager can yield substantial benefits in the long run, if you stick with it. Sign up for stock news with our Invested newsletter. With time on their side, teens can leverage the power of compounding to grow their wealth significantly over the years.
Is 20 a good age to invest? ›
If you are overwhelmed, start small. Right now, in your 20s, you have time on your side to create positive financial habits and potentially compounded wealth. Investing in your 20s can increase the likelihood of reaching your financial goals and giving yourself choice and flexibility. Your future self will thank you.
