As a young person out on your own in the world for the first time, you not only have great freedom but also great responsibility. Mom and dad might not be around to set a curfew, but they also aren’t there to make your doctor’s appointments or oversee how you spend your money. The financial decisions you make now will impact your future. According to a report, young adults who take on debt find it harder to buy a home later in life. Avoid getting into money troubles that will interfere with your goals by following these guidelines.
Start setting aside money for your future home
Homeownership is still important to many Americans, with more than half of adults surveyed saying they dream of their own place. Whether you fantasize about a house in the suburbs or a city apartment, start building a nest egg now. If you are able to make a 20% down payment, it will be easier to secure a favorable interest rate and loan. In fact, many people choose to save up money for the down payment before they begin searching for their dream home. You can save for the down payment by cutting out expenses like gym membership and cable. If your schedule allows, pursue part-time work and deposit some (or all) of that income into the bank so you won’t get tempted to spend it.
Create a budget and adjust it as needed
To reach that 20 percent down payment, you will need a budget. This details your monthly expenses, including everything from rent to utilities, food and drinks, entertainment, and travel. You want to make sure you aren’t spending more than you make each month. Incorporate a section for savings; setting aside even just $100 per month can add up to more than $1,000 in a single year. TaxAct’s online savings calculator lets you see how much you can expect to rack up based on your intended monthly contributions, interest rates, and timelines. If you feel you aren’t reaching your goals fast enough, you can adapt your budget accordingly so you can put more toward savings.
Build up your credit score
Good credit will help you secure loans for future needs like a car or house. Get a credit card and use it regularly, always paying off the balance on time each month, to start building up your score. To help you build credit, keep your balance low and start out with just a single card instead of distributing debt across multiple cards. Always read the fine print on credit card offers, especially regarding interest rates; some will lure you in with a low rate that is later substantially increased. If you want to play it safe, you can start off with a secured card, which requires an initial cash deposit in the amount of credit you want.
Invest in a retirement fund
While retirement might seem like a long way off, the sooner you start preparing, the better off you’ll be when the time arrives. Investing in an IRA or 401(k) retirement fund is a great first step. Some employers will even match what you contribute to a 401(k), allowing you to save even more quickly. These are both tax-advantaged plans, so whatever you contribute to the fund each year won’t be taxed during the year it was earned. The taxes are paid when you withdraw from the account in retirement.
Look into a life insurance policy
Life insurance can help relieve your family’s financial burden after you pass by providing them with a payout. Depending on your household situation, you may or may not need life insurance at this time. If you’re married, a parent, and/or the breadwinner, having life insurance can help the survivor(s) pay for funeral expenses, rent, daycare, or debts.
Paving the way for a bright financial future takes careful attention and planning. The above guidelines cover major points that should be prioritized. Adjust your budget accordingly and stick to it. Some people may choose to pick up a second job to help achieve their savings goals, while others may choose to cut expenses to get there. Whatever route you settle on, making these smart moves now will mitigate money-related worries down the line.
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