Prioritizing Financial Health In 2022

Timing is everything: The 5 retirement mistakes to avoid at the start of a career

When you’re first starting your career, retirement is the last thing on your mind. And, if you’re starting off with an entry-level salary, the idea of saving for retirement can seem impossible as you watch each paycheck go towards bills and expenses.

But it’s never too early to start thinking about your future and avoiding these five mistakes now can have a huge impact later.

Even for those of us who “never get sick,” health insurance is a necessity. Just like car insurance is mandatory, even for those who have never been in a crash. Just because you’ve managed to avoid the flu each year or haven’t suffered the effects of Covid-19 doesn’t mean you’re immortal.

If you’re under 26 and lucky enough to be covered by your parents’ health insurance, you’re in a good place. But if that’s not the case, or you’ve aged out of that coverage, failing to maintain health insurance can be detrimental not only to your health, of course, but to your financial future.

If your appendix bursts and you need emergency surgery, if you fall on a hike and need to be airlifted to the nearest hospital, if you go for a routine checkup and get the devastating news that far too many people these days must hear, you’re going to be hit with medical bills with commas in them. Even for something that may seem simple like prescription medication (because, let’s face it, we’re all on anxiety meds at some point), you will experience sticker shock if you have to pay out of pocket.

Whether you’re 26 or 96, have health insurance.

This one seems obvious, and yet so many of us find ourselves having to dig our way out of debt.

The easiest way to get out of debt is to not get into it in the first place. This can mean a few different things.

First, live below your means. Set a budget or monitor your spending to the point that you are not spending more than you are bringing in. If you don’t have positive cash flow, changing that should be priority number one. Adding a side hustle, reducing your expenses, getting a roommate, or simply kicking your addiction to Uber Eats can make a difference in your cash flow and keep you from relying on Visa.

Second, have an emergency fund. You want to be building your savings so that if you were to hit a point of unemployment, you’ll have a cushion to cover your expenses for a few months while you find your next move.

This is also important in protecting you from those unexpected expenses that pop up at the worst times, like a broken appliance or a blown tire. Having some cash on hand to cover those bills will keep you from a massive credit card bill.

Finally, if you’re reading this at the start of a career, it’s probably too late to lecture you against taking out student loans. So, if you have them, see if your company offers any type of student loan assistance, or if your state has any student loan forgiveness programs.

Getting your employee benefits package is exciting, but don’t flip to the vacation days page and ignore the rest. There are aspects in that package that will help you build wealth and prepare for retirement now, and the earlier you take full advantage of them, the better off you’ll be.

Pay close attention to the details of your 401(k) plan. If you don’t need the tax break associated with a traditional 401(k)—which is often the case at the start of a career—a Roth option will let you contribute fund AFTER taxes rather than before. This means paying income taxes while you’re in a relatively low bracket and withdrawing the funds without any additional tax payment after you retire.

Most companies that offer a 401(k) plan will have some sort of employer match. Make sure you know the guidelines around your employer match so that you can take full advantage of it. If you can afford to, contribute at least the minimum percentage needed to get the full company match. It’s the easiest (legal) way to get free money.

Another detail to look for in your 401(k) is your vesting schedule. This is the schedule on which your employer’s contributions to your account become yours. If your company has, for example, a five-year vesting schedule, you’ll need to stay at that company for a full five years or else you’ll forfeit all the money that your employer contributed on your behalf. Your own contributions are instantly vested. Make sure you know this schedule if you’re thinking about changing jobs so you don’t leave any money on the table.

Your benefits may also include life insurance and disability insurance. Both of these often have elections you’ll need to make.

For life insurance, some basic coverage may be provided at employer cost. All you need to do is to make sure you elect beneficiaries to receive the proceeds in the event of your death. You may also have the ability to buy supplemental group life insurance. If you’re unmarried and don’t have children, you may not need to elect this option.

Disability insurance is a critical component of any solid financial plan–especially for young people. That’s because the greatest asset you might have in your 20s is your future earnings potential. There may be a short-term and long-term disability, and the long-term is the more important of the two. If they are offered at employer-cost, that’s a major benefit. If you have the ability to buy-up or increase your long-term disability insurance, do it.  It won’t cost much and could really save the day in the event you're injured or sick.

Finally, on the topic of employee benefits, think carefully about which health insurance plan you choose. While it may seem like the obvious choice, the most comprehensive plan may not be the best for you.

If your company offers a high deductible plan and you’re not someone who generally spends a lot of money each year on health care expenses, opting for that plan to take advantage of a Health Savings Account (HSA) can help you build wealth in the most tax-preferred way possible.

If you do open an HSA, I’d still recommend covering your expenses out of pocket rather than dipping into this account IF you have the financial means to do so. If you leave your contributions to grow in this account, you can actually invest the balance throughout your career. If you save the receipts from co-pays, prescription costs, and other qualified expenses, you submit them all together later in your life to be reimbursed when you need that money the most.

At the start of your career, your salary is likely low, you probably aren’t sitting on any meaningful assets, and your retirement horizon is barely a blip on the radar. Regardless, it’s the perfect time to start working on your financial plan.

Start seeking professional financial guidance as soon as you start earning a salary. That doesn’t have to mean hiring a financial advisor like myself. There is a full slate of professionals ready to meet you where you are—wherever that may be—and you’ll graduate to different professionals as you progress in your life and career.

Starting with a financial coach can help you build your budget and develop good money savings habits early. You’ll learn tools for growing wealth, discover any emotional baggage or trauma you may have around money, and identify and work towards financial goals.

When you’ve mastered your savings plan, stuck to your debt reduction plan, and have started to accumulate wealth, you can move on to the next tier of professionals, such as a Certified Financial Planner™ practitioner or a financial firm with a hybrid or robo-advisor model.  

Social media is ever-present in our society. It helps families and friends stay connected, helps news travel quickly and makes this giant planet we’re on seem a little smaller. But it also warps perceptions and puts unnecessary pressure on us to be perfect.

Be wary of what you read online and don’t believe everything you see on Instagram. Nobody’s teeth are that white, nobody’s skin is that perfect, and nobody is as happy as they appear.

Don’t fall victim of the pressure to live the kind of life you see on social media because those images are often captured through a filter and clever lighting. Spending money you don’t have in order to keep up with the Joneses will inevitably lead to financial distress. The best tool you have is your authenticity. Own who you are.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regards to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.