Young adults have so many things pulling at their minds and their money it can sometimes feel overwhelming. We’re here to help. When you’re just starting out, following these seven simple steps can protect your financial health today and build financial security for tomorrow.
Try to pay with cash, rather than credit. If you do pay with credit, always pay your balance in full when the bill arrives. If you can’t pay in full, make sure you’re paying off the balances with the highest interest rates first. And of course, make sure you have a repayment plan in place for any other outstanding debt, like student loans.
Know how much you have and how much you need to spend each month. Learning where your money goes each day or week can help you differentiate between needs and wants and adjust your spending accordingly so you’re always living within your means (and paying with cash, as mentioned above).
No matter your age or how much you make at your job, pay yourself first. The amount doesn’t matter as much as the action itself – it’s not about the money you save, but the habits you build. Start setting aside a small amount in an emergency fund and increase the amount as you can (new job, promotion, etc.) with a goal of having three to six months’ worth of expenses saved.
Even if it seems like a long way off, start thinking about your retirement now. Participate in your company-sponsored retirement plan if you’re eligible. Not only does this out-of-sight-out-of-mind mentality make saving easier, but many companies will even match your contribution to a certain amount (nothing better than free money!). Review your contribution amount with each pay increase. Also consider a Roth retirement account if your employer offers it. Early in your career it is likely that you will be in a lower tax bracket than in retirement, which can make a Roth more attractive.
Make a habit of checking your online bank accounts and knowing how much income will be going in and when. Then monitor what is coming out and make adjustments accordingly. Also, reviewing your account often will help guard against any suspicious activity resulting from fraud or identity theft.
For health insurance, consider a high-deductible plan. If you’re healthy, you’re less likely to need anything more than preventative care, and high-deductible plans can keep monthly premiums lower. This type of plan also provides the option to save pre-tax funds in a health savings account (HSA). It’s also a good idea to maintain adequate renter’s or homeowner’s insurance for worst case scenarios.
Keeping your debt amount low and, most importantly, paying your bills on time will have a positive impact on your credit score, which will have a positive impact on your ability to obtain a loan and get it at the best interest rate. Check your credit report at www.annualcreditreport.com.
A young adult with sound financial habits is likely to become an older adult with a sound financial foundation. We can help you build them. Whenever you have financial questions or need suggestions, just give us a call.
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