Starting your adult life as an independent individual free from parental oversight is an exciting rite of passage. Entering the grownup world isn’t always easy, however. You should take steps to protect yourself and plan for your future — responsibilities that once fell to mom and dad. This is especially true when it comes to finances. As you start earning your own money, it can be tempting to simply spend it. The choices about what you do with your income and worst yet, future income, will impact your security and comfort down the line.
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Create a Budget
Learn how to track your money to ensure you can cover your basic needs and won’t be left scrambling to make rent. Start by calculating your net income — what you get to keep after subtractions like Social Security, taxes, and 401(k) contributions. Next, make a list of your recurring expenses including rent, utilities, phone bill, and similar costs. Create a list of your financial goals, both short- and long-term. These could include eliminating debt and understanding the balance of how to use it to your advantage and avoid the debt trap many young people fall into.
Track Your Spending
Once you have a budget set and have figured out where to divert your funds every month, it’s important not to get sidetracked. If you allotted a food budget of $250, exceeding it will throw off your entire balance sheet — and you will have to take funds from another area, like savings, to make up for it. This isn’t ideal. Keep track of where your money goes by downloading a budgeting tracking app. CNET provides a roundup of the best ones suited to a variety of needs.
Set Up Automated Savings
Every budget should include a savings plan. Even if you aren’t earning a lot, simply setting aside $50 per month can make a difference. Within just one year, this can add up to $600. Such an emergency fund is critical, as it can cover surprise costs like car repairs or a new phone if yours breaks. When these unexpected hassles arise, you can dip into savings instead of credit cards. It’s been shown that people are most successful at setting aside money if the process is automated: A set amount is taken from your account and deposited into savings before you can touch it.
Consider Life Insurance
When you’re young, the idea of getting life insurance might seem a little ridiculous. However, there are many reasons you shouldn’t rule it out. For instance, if you don’t have any emergency savings set up, a life insurance policy can help cover the cost of funeral and burial expenses so the burden doesn’t fall to your family. Also, if you plan on getting married, having kids, or buying a house in the near future, getting a life insurance policy early means you’ll have a little peace of mind when that time arrives.
Start Building Credit
A good credit score allows you to secure future loans for everything from cars to houses. If you’ve never had a credit card, and you understand not to spend more than budgeted, you may want to get one. They are safer from theft than debit cards and can assist in building your credit score. Read the fine print on any paperwork to figure out details like interest rates; some companies offer low rates to start but hike them up later. You don’t want to get stuck in this trap. Use your card and pay it off regularly. Don’t miss payments, which will negatively impact your score. You can find more ideas to boost your credit online, such as paying off any outstanding student loans and making phone payments (on time, of course).
Set Aside Money for Your Future Home
Owning a home is still a dream for many: According to a Pew Research Center survey, some 43 percent of Americans view this as part of the American Dream. If you want to buy a house one day, you need to save up for a down payment. The more you put down on a home, the less you’ll have to borrow for your first mortgage. If you put down 20% and have a good credit score you could be eligible for the lowest interest rates on the market. Waiting until you start house hunting is a bad idea, since it does take time to set aside enough money for the down payment and closing costs. Some of the best ways to finance the down payment include opening a savings account just for the home purchase, improving your credit score, and finding additional work to earn more income.
Starting off on the path to financial independence can be intimidating. However, by using these tips, you will get off on the right foot and will help create a more secure financial future.
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