Plan your financial future with vision, patience and precision just as you would design with architecture.
Despite money management being harder than designing buildings for early-career architects, most are not taking sufficient steps to manage their finances, due in part to them having modest salaries from the outset, while paying off their student debt, and being in the process of obtaining their license while working long hours.
Yet these early years of your career are also the most important years of your life, and the way you invest these years will have a profound effect on the rest of your life and on your financial future.
You don’t need to have the perfect salary or to have started investing in the perfect investment. What you need is to have a clear view of your finances, to have a clear view of your income, of your obligations, and of the steps that you can take in order to have more control over your finances.
Understand the Financial Reality of an Architecture Career
Look at the progression of your fellow early career architects and the typical development of their architecture careers.
People generally enter the field of architecture expecting steady salary growth. However, the nature of an architect’s work often results in varied compensation from one location to another, from one firm to another, and from one architectural discipline to another. Architectural compensation also varies with experience and with the architect’s level of licensure. The overall economy and the level of activity in the construction of new buildings and structures can also have a negative effect on a firm’s ability to hire architects.
In other words, architecture isn’t inherently financially unstable. What is unstable is your particular financial plan.
This early-stage compensation is made up of a lot more than just your salary. There are a number of fringe benefits that, although not cash, most do count towards your overall compensation package. Paid time off, in particular, is very valuable, both financially and in terms of being able to use that time for furthering your career.
Lastly, make sure to track any changes in your duties or responsibilities. Contributions such as managing clients, coordinating consultants, managing through the phases of a project, and even mentoring junior staff can all be brought up for discussion of future raises and promotions.
Keep a running tally of your contributions and don’t rely on your memory when it comes time for a review of your compensation.
Build a Budget That Reflects Your Actual Life
A useful budget will reflect your financial situation and expenses in a helpful manner rather than be a restrictive mechanism that creates stress.
Next, list out your expenditures in 3 categories: essential expenditures, financial goals, and flexible spending.
Break down expenses into necessary expenses, financial goals, and miscellaneous spending. Essential costs to consider in establishing a budget include: renting an apartment, car payments, groceries, health insurance, minimum payments on outstanding debts, and utility bills.
Architecture professionals, in particular, face a number of unique expenses in addition to the typical expenses of a worker in another field. These may include the costs of taking a licensing exam or purchasing study materials; membership in a professional association; specialized software; models; travel to attend professional conferences or to visit at clients’ sites; and ongoing education to keep up to date with the newest methods and technologies.
Plan for these expenses instead of treating them as surprises.
A simple monthly budget can work just fine. First, write down how much you make and then outline your ongoing expenses and also outline any professional expenses. Next, make sure that you have enough to cover any irregular spending. For example, be sure to have enough for a year’s worth of car maintenance or for paying for property taxes. As you go through your expenses, consider whether or not your spending will support your goals.
The goal is awareness, not perfection.
Create an Emergency Fund Before Taking Bigger Risks
An emergency fund gives you room to respond when something changes.
Why Save When Projects Can Get Delayed? Projects can get delayed for many reasons. Clients can even cancel. Many architecture firms experience recessions in the construction industry. Even if a firm has strong employees, they can get laid off, especially if their hours have already been reduced.
It is a good idea to start off with a smaller goal, such as saving the equivalent of one month’s essential expenses, and then gradually work your way up to a few months’ worth of savings. A good target for most people is to save 3-6 months’ worth of essential expenses.
Hold that money in a separate savings account. Keep it liquid, to respond in case something unexpected occurs. Most important, do not put it in any investment that could drop in value, or take a long time to liquidate.
The Consumer Financial Protection Bureau also provides architecture students and young architects with practical guidance and tools on a range of topics, including building an Emergency Fund, creating a budget, and managing debt.
Having a savings goal and being patient may take some time to reach but savings will continue to add up to your emergency fund as long as you continue to make deposits to it over time.
A small amount set aside for emergencies can be better than nothing.
Develop a Clear Plan for Student Debt
Large expenses, such as professional degrees, for architecture graduates can lead to large expenses in the form of student loans that are not repaid until the graduate’s income has increased significantly.
Create a list of each of your student loans, including the interest rate, monthly payment, outstanding balance, and repayment terms (e.g. fixed, variable, installment contract). Review both federal and private loans, as each may have different features and protections.
It is also important to note that Federal and private loans are two separate types of loans with their own set of protections and repayment options.
A lower monthly payment will improve your cash flow but as already stated will increase the total amount of interest you will have to pay. A shorter repayment term could have the reverse effect of reducing interest but putting greater pressure on your current budget.
Compare loans by putting them into a student loan refinance calculator to compare interest rates, repayment terms, monthly payments and costs of borrowing after refinancing.
While refinancing your student loans may seem like the easiest way to lower your monthly payments, it is not necessarily in your best interest. If you have federal loans, for example, you could lose access to income-based repayment plans, forgiveness programs and other benefits if you refinance your loans with a private lender.
This will depend on your personal circumstances, including how much you earn and the likelihood of losing your job, as well as your credit score, the type of loans you have and the interest rates on them.
Early-career architects should look for skills that are both useful and difficult to replace. These skills can help them to receive promotions and raises.
Use Licensure as a Financial Milestone
Obtaining your architecture license will allow you to take on greater responsibility, sign drawings in certain situations, and will allow you to take on more projects and assist in the business development of your firm.
It is important to view licensure as an investment that requires planning and should be viewed in the same light as other important financial goals.
Estimate the full cost of obtaining a license to practice architecture and set up a separate savings category. Find out if your employer offers reimbursement for the cost of studying for your license, paid study time, a mentor, or bonuses after completion.
Some firms offer more support to their employees than they realize. Ask to find out!
Upon licensure, highlight to your supervisor and future employers the value that you have to offer. Document the added responsibilities that you can take on such as signing drawings, managing projects, supporting business development, etc.
Your newly acquired license will not automatically lead to higher wages on the spot, but it does strengthen your hand when negotiating with your employer about possible higher wages or in your job search.
Design Your Financial Future With Intention
Financial security is rarely created by one event. Rather, it is the result of a series of financial decisions, most of which are fairly ordinary, but made consistently.
To ensure that they are creating a stable financial future for themselves, early-career architects should make time to create a realistic budget and start to save for emergencies as well as retirement, while also paying off student debt and attempting to obtain licensure as quickly as possible. It’s not easy, and it’s unlikely that early-career architects will feel completely ready to take the leap at first, but with time, they can develop the skills, and the financial stability, to continue investing in their futures.
Your career will change direction, the economy will change, and you will change too. That is why you need to have a plan.
