For the young adult just starting his or her life, the road to financial solvency can be pretty bumpy, especially if you haven’t been imbued with the skills and knowledge to effectively manage your money. So if you’re looking at being out in the world on your own for the first time, here are a few tips to get you started on the road to fiscal wellness that will carry you through the rest of your life.
- Pay on principle. Student loans can take years to pay off, especially in an unfriendly economy for college grads looking for work. It can be tempting to opt for the minimum payment each month when you’re not earning a lot, but try to pay more on the principle when you can and you’ll end up paying loans off faster and with less interest, ultimately saving you money.
- Always work. Even if you can’t find an occupation suited to your professional tastes, take anything that can tide you over while you keep looking. Continuing to dig yourself deeper into debt is nobody’s fault but your own if you refuse to take work you deem to be beneath you.
- Set a budget. Most young adults have no idea how to manage their money, but the basic principle involves spending less than you make. Create a budget to track your income and expenditures to ensure you don’t end up on the wrong end of the equation.
- Save for a rainy day. Everyone, absolutely everyone, should have a savings account. Even if you only put in $20 per paycheck or $100 a month, it could mean you have the money on hand to deal with an unanticipated expense without going into debt.
- Diversify investments. It can be tempting to gamble on high-risk stocks, or alternately, sit on low-earning bonds for years. But by diversifying your portfolio, you stand to make your money work for you in a much smarter way over time.
- Start a Roth IRA. A 401K may not be enough to support you when it comes time to retire. By contributing to an additional IRA, you’ll enjoy a tax rebate each year (although it will be taxed as income when you withdraw it) but also the peace of mind that comes with saving for your distant future.
- Get minimal life insurance. People in their twenties simply do not need full-coverage life insurance. The chances of it paying off are miniscule and it’s an added expense most young people can’t afford.
- Buy used. There are very few things in life needed to be purchased brand new. So look for certified, pre-owned cars (that come with a warranty but cost a lot less than new), used electronics (Dell offers refurbished laptops and computers), and so on. You’ll save a lot of money and still get what you want.
- Consider housing. Buying a house isn’t the right move for everyone. When you have built up a decent credit score, enough capital for the down payment, and you have a stable job whereby your mortgage amounts to approximately ¼ of your monthly income, then you’re ready to buy the smart way.
- Have some fun. All work and no play could make you a pretty dull twentysomething. You’re too young to be your parents! So allow yourself some fun money once in a while or you risk falling off the wagon with your spending down the road.
Sarah Danielson writes for J.G. Wentworth, the market leader in structured settlement companies.
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