Developing a Foundational Wealth-Building Mindset as a Young Professional

As a young professional in your 20s or 30s, you have an immense opportunity before you. The choices you make now potentially have multimillion-dollar implications for your future self. In my experience working with financial planning clients from all walks of life, I’ve learned that one of the key elements to building wealth is developing a wealth-oriented frame of mind. It’s important to adopt behaviors and habits that make wealth-building a natural and consistent process. Some traits of this mindset include a disciplined approach to lifestyle expenses and cash flow, an emphasis on continual professional growth, clear communication between spouses, and a long-term view of financial goals. Let’s explore these in more detail.

1. Be mindful of lifestyle inflation.

As you progress in the early years of your career, you will see colleagues and friends getting nicer cars, bigger houses, and more expensive hobbies. Envy can creep in, and before you know it, you, too, are scrolling the internet looking for an upgraded apartment or car. As your income grows, your expenses grow just as quickly. Little by little, your lifestyle becomes more luxurious and thus more expensive.

This phenomenon is called lifestyle inflation (sometimes referred to as “lifestyle creep”). This is typically not a single conscious choice but rather a progression of small decisions that add up over time. If your lifestyle expenses increase in tandem with your income, you will struggle to make progress in your long-term financial goals. This is why it’s essential to stay very mindful of this “lifestyle inflation” phenomenon in your life.

Of course, lifestyle increases are not inherently bad, but they should be done purposefully and in a way that brings you joy and contentment. Falling prey to the mindless expansion of your lifestyle simply to keep up with those around you can lead to unnecessary and unfulfilling spending. Remember: It’s very easy to allow inflation of your lifestyle but very difficult to undo it once you’ve allowed it to take hold.

By aligning your spending with your values and priorities, you can create a lifestyle in line with your long-term financial goals.

2. Stay in control of your cash flow.

Excessive financial obligations such as car payments, credit card debt, and personal and student loans can quickly erode your free cash flow, leaving you with little to no flexibility to save and seize investment opportunities. These debts can consume your resources and burden your finances, which is why it is crucial to manage them efficiently. The less flexibility you have in your monthly budget, the fewer options you have for pursuing financial goals. By limiting these types of debts, you help ensure that you have control over cash flow rather than being controlled by it.

3. Focus on developing your professional skills and network.

Continually honing your professional skills and expanding your professional network are reliable strategies to increase the value you bring to your employer and clients. By investing in self-education, seeking mentorship, and putting these new or enhanced skills into practice, you increase the value of your work and the earning potential for such work.

While it is important to be mindful of your expenses, you can only cut them so much. There is, however, no limit (in theory) to what you can earn. Consider a hypothetical situation where you have to choose between receiving a $10,000-per-year promotion or reducing your expenses by $100 per month. Obviously, you can strive to do both in the real world, but in this hypothetical, the choice is obvious: Take the $10,000 raise. Be mindful of expenses, but don’t forget to also focus on increasing the value you bring to the marketplace and, ultimately, your earning potential.

Please take note that I do not necessarily recommend getting more formal education. Further schooling can be valuable, but that is not always the case, especially if it comes at the cost of more student loan debt. Formal education does not come with the guarantee of making yourself more valuable to the marketplace. If you’re considering continuing your education (going back for a master’s degree, for example), carefully weigh the costs, the degree’s value in terms of your expected future earnings compared with your current earnings, and the amount of debt you can reasonably expect upon graduation.

Professional development is a lifelong journey, not an overnight process. Don’t let your professional skills stagnate; rather, patiently and consistently work to improve your competency and knowledge and make yourself increasingly valuable to the marketplace. Over time, this should translate to higher earnings.

4. For couples: Get comfortable communicating about money.

Frequent and open communication about money leaves little room for gray areas and creates shared goals and accountability. In my own life, my wife and I recently began holding a monthly “family finance meeting” where we go over our progress toward short- and long-term goals, check our accounts, and cover any of our “to-do list” items from last month’s meeting. While these meetings were initially uncomfortable and stressful, we now have a high level of transparency and communication regarding our finances, and nothing surprises us anymore. Our only regret is that we didn’t start this habit sooner.

By approaching financial conversations with respect and shared goals, you can establish a solid foundation for a healthy financial future together. However, it’s essential to approach communication about money with caution, especially when it comes to discussing finances as a couple. Money is a very sensitive topic. It’s important to make it clear that the goal is to work toward shared goals and to avoid making the conversation a “blame-fest.” To make it a more enjoyable experience, try incorporating a fun element, such as enjoying your favorite dessert together during the meeting!

5. Develop a long-term mindset.

When building wealth as a young professional, few things can be as detrimental to your sense of contentment and motivation as reading stories online about someone who made millions on a crypto or stock trade. I understand—I’ve been there myself. These stories can be disheartening and make you lose sight of the progress you’ve made in your own journey. However, it’s important to remember that such stories are rare and potentially fabricated. If true, they are often based on a combination of luck and an irresponsible degree of risk. While some do get lucky and build wealth very quickly, that’s not how most wealth is built. Most wealth is built slowly, over decades, not days.

Keep your focus on the long term and stay disciplined in your approach to wealth-building. Stay focused on the progress you’ve made. While it may take years or even decades to build wealth, it’s the steady, deliberate progress that will ultimately lead to financial success. Stay patient, stay committed to your goals, and tune out the noise.

Zac Pohlenz, CFP®

As a Wealth Advisor, Zac works every day to help clients reach their financial goals, and finds it satisfying to know that he has helped someone gain a new perspective that can help change their life.