You might not think so, but consumers do need to plan for their financial future even when just starting out.  Financial planning and management, including budgeting and other considerations, are essential elements to keep debt – and your entire financial life – under control.  Because if you’re not careful, debt negotiation and eventual debt settlement could quickly be staring you in the face.

O.K.  You finally finished college and are now stuck with tons of student loans.  Or, perhaps you’ve been out of college for a few years, got married and are planning on starting a family.  If you are really fortunate, you landed your dream job with full benefits and are well on your way to a bright financial future. In all of the above, you need financial planning. Don’t you think?

But if you are like most people in your 20’s – you’re broke!

At this entry level age, most jobs provide a low income.  Since you are just starting out, debts tend to be high.  Most people in their twenties are “living on the edge”. They do this financially speaking (median annual income for a 24-year-old male in 2014 was $27,040; female $25,116).  But there is a silver lining to this financial gray cloud for twenty-somethings: time is on your side!

Important Point:  Money saved and invested when you’re 24 will be worth a lot more upon your retirement than money put away when you’re 55; simply because it will have three more decades to compound.

Two Financial Planning Scenarios.  

The first is Ellen — a hard-working, 24-year-old who somehow manages to put away $200 per month, every month, until the age of 30.  After that, she is no longer able to save. The additional costs of raising a family and now only working part-time take a financial toll.

The second is Tom, who didn’t pay much attention to saving for retirement until he hit age 55. He has had above-average earnings his whole career, but usually quickly spent all of that money in short order. Now he gets serious and starts putting away a whopping $1,500 per month. This is far more than Ellen did, even after accounting for inflation.

Assuming both of them earn the S&P 500’s historical return of about 9%, who will have more money when they hit 70? Surprisingly, Ellen will!

This leaves us with one hard and fast conclusion:  Be extra mindful of your spending and saving during your early working years.  Ellen only saved for seven years, but it ended up making a huge difference in the long run.  If nothing else make sure you do everything you can to get your maximum employer match in your 401(k) or 403(b) plan — if it’s offered.

But how can you save if you are earning very little when you are just starting out?  Here are a few tips:

• LIVE CHEAP: The more years you continue living like a broke college student, the more money you will save for real adult goals, like retirement and health insurance.
• PURCHASE HEALTH INSURANCE: It’s easy to skip this since you are usually pretty healthy in your twenties, but just remember you are only one accident or illness away from total financial disaster without insurance.  If your employer doesn’t offer insurance, buy an individual policy.  By opting for a higher deductible, your monthly premiums will be lower.
• BE SMART ABOUT YOUR FINANCIAL PLANNING AND SAVE: If your employer offers a 401k or other retirement plan, sign up for it and contribute the most you possibly can. If that’s not available, open an individual retirement account, and contribute between 10-15% of your gross earnings religiously.
• INVEST: Since you are young, you have decades to ride out the ups and downs of the stock market, so consider putting 80% of your retirement funds into the market. If investing baffles you, talk to an expert.
• AVOID DEBT: Resolve to not carry balances of any kind on credit cards. Pay them off each month.
• WATCH YOUR CREDIT SCORE: The higher your score the lower your interest rates will be when securing loans for cars and homes.

Keeping an eye on your finances in your twenties will set you up for a good life.

For information on almost anything financially-related, visit the SettleiTsoft^® Knowledge Base.  There are dozens of videos and written material with subjects about financial planning. From the Top 10 Credit Card Tips and Protecting Yourself from Identity Theft to Understanding Payday Loans and Wedding Planning.

Please Note:  This material is for educational purposes only.  For specific advice, please contact a qualified professional.