As young professionals are entering the workforce and beginning their careers, they will be faced with questions their parents did not likely have to consider. More than any time before in history this generation are faced with the decision – should they pay their student loans off in full as quickly as possible or actively save for retirement. The decision to pay off student loans quickly will often come at the expense of retirement planning. With this in mind, let me offer a quick of points to consider when making this decision.

  1. Begin planning and investing now

You begin your professional career with the understanding that you will retire someday and the fact is, today you are one day older than yesterday. This means you are one day closer to your retirement age. This also means you are one day closer to you having to rely solely on your retirement income. So it is wise to begin thinking and planning today for your retirement today.

We have to at least recognize that Americans are overwhelmingly not adequately prepared for their retirement years. In fact, just 30% of working professionals are on track to save the 11 times their annual salary that experts suggest they will need to maintain standard of living after retirement at age 65 (Aon Hewitt).

If young professionals make commitments, even small ones, early in their careers, it will likely pay huge dividends in the future.

  1. Remember every financial decision has a trade-off

If you have $50 and you make the choice to spend the extra money on clothes, that obviously is $50 less that can be contributed toward your retirement or student loans. Every individual will have make choices that will be specific to their financial needs. But those who ultimately come out on top realize early on that a lot of small choices can lead to big impacts on your financial future.

There isn’t a magic formula or hard set rule with respect to appropriate budget balancing as it is personal. But families would be wise to make sacrifices today and push off some of the extra expenses in an effort to really have a better tomorrow.

  1. Time value of money and compounding interest

During our career week when I was a junior in high school, we had a guest speaker who was a financial planner. I remember his name was Ron and carried a Franklin day planner. He attributed his Franklin planner and a calculator to his success, which I thought was a particularly odd even then. However, he talked with us about some basic investment concepts, including the power of compounding interest. The trick he said was to start as early as possible.

I remember him running through the basic formulas with a compound interest calculator and I was thoroughly amazed at the concept of me becoming a millionaire someday. Compounding interest remains a powerful concept that can either work for or against you, especially when planning for retirement.

So planning to increase your retirement base and remaining disciplines will likely pay great dividends in the future.

  1. Prepare a rainy day/emergency fund before anything else

Before making the decision to either contribute toward your retirement or pay off your student loans, prepare a rainy day or emergency fund. This is an important concept for young professionals to consider when preparing a financial plan. Life will always be filled with unexpected and often times expensive surprises.

Having a cash cushion will help tremendously during these times and can avoid circumstances where you are looking to rack up credit cards at high interest rates just to stay afloat.

If you have children, this is especially true as children only increase the chances of something unexpected happening. As a father of four kids, I can especially attest to this fact.

Building a rainy day/emergency fund with about three to six months’ worth of expenses will help you tremendously and can save you a significant amount of money in the long run.

  1. Participate in retirement 401k if your employer offers a match

If your employer is offering to match or contribute to your 401k, you should participate in it. This will be one of the only “risk-free, guaranteed” investments you can make. While some employers are moving away from this perk, it would certainly be an advantage that young professions to take advantage of to better secure your retirement future

One option that seems to be gaining some traction is where companies will match your student loan payment into a 401k policy. For example, you pay $200 a month in student loan payments, you employer would contribute $2,400 toward the company offered 401k. This is certainly an intriguing prospect and it will be interesting to see if more companies adapt this process to meet the needs and concerns of young professionals.

  1. Gain a better understanding of your debt obligations

If you have student loans, these are debt obligations will factor into the potential “purchasing power” formula used for other investment endeavors. The same is true for any of your other loans or debt obligations as well. If you have credit cards, car loans, or personal loans or any other recurring payment will be taken into consideration when making a significant purchase, such as a home.

So it makes sense to gain a full understanding of how these loans pay into that overall financial equation. Using something like the debt snowball strategy, will help to reduce your overall debt obligations. Gaining an understanding of how all of these loans fit into your overall financial picture is especially important. When you do this you will help to speed up the process gaining your financial freedom.