20 Jan 5 Financial Must-Dos for Young Adults
So, you’re out on your own, and you’re learning to navigate the confusing world of finance as a young adult. Here are five things you can do to help set you up for financial success for years to come.
Learn how to budget.
It might sound intimidating, but it isn’t too difficult: track how much money you’re getting every paycheck, determine what housing you can afford, and then portion out other parts of your income for regular expenses like transportation, groceries, insurance, monthly bills, and discretionary spending. Track these things in a spreadsheet and adjust month-to-month as needed.
Get a credit card.
Credit cards are crucial for building a good credit history, and that is why it is a good idea to get one as a young adult. Just keep in mind that credit cards can also be very dangerous, as many people use them to buy things they can’t truly afford, eventually falling deeper and deeper into debt. When you’re getting a credit card for the very first time, consider using it only for something that you’re used to setting aside a certain amount of money for every month anyhow—like groceries or gas.
Open a retirement savings account.
If you manage to land yourself a job straight out of college with an employer that sponsors 401(k) accounts, consider yourself lucky—you’re already well on your way towards saving for retirement, and your 401(k) account may very well become the backbone of your retirement savings down the road. But whether or not you have a 401(k) account, it’s a good idea to consider opening an IRA while you’re young. Which type of IRA you go with depends largely on your filing status and income (and falls beyond the scope of this blog article), but know that it’s a good idea to talk to a financial adviser about opening a retirement account as soon as you’ve obtained a stable income for yourself.
As invincible as you might feel in your 20s and 30s, there are several areas where it’s important to be insured just in case emergency strikes. The three main areas in your life you’ll need to consider getting insurance for? Health, auto, and home. If you’re lucky, your employer will offer a strong and affordable healthcare plan; but even without that as an option you can enroll in federal healthcare. For auto insurance, you’ll need to shop around to find what is the best and most affordable option for your particular circumstance. And for home insurance, since many young adults do not yet own homes and therefore rent, renter’s insurance is probably what you need. It costs only 15 bucks or less per month, but it might just make all the different should there be a fire or natural disaster.
Build an emergency fund.
In addition to getting yourself insured, you’ll want to establish an emergency fund to prepare you for unexpected major expenses, such as medical coverage premiums, car repairs, and funeral expenses. Your goal should be to establish an emergency fund that will cover about six months’ worth of basic living expenses. It’s a lot of money to be sure, but start small instead of not starting at all.