When you’re young and just starting life on your own, you’ve already got a good amount of education under your belt. What many young people don’t have is experience with managing money. The ultimate goal is to protect your money now so that you stay financially secure for the future. But how do you plan for the future on a starting salary? Even when you’re up against some challenges, the key to planning ahead is to adopt smart strategies for how you spend (and save) now.
#1 Plan for a Rainy Day
When you’re young and your future is full of opportunity, planning for life’s downturns probably isn’t the first thing on your mind. However, this is exactly when you need to think about those situations. Life’s unexpected events can do serious harm to your finances if you haven’t planned ahead. This is why you should start living below your income level and set aside money for an emergency fund. From major medical bills to home or car repairs, emergencies happen, and saving even a small amount now is the way to be sure you’re prepared.
Another major part of planning for a rainy day should include looking into life insurance and whether it’s something you may need now or in the near future. At this point, your primary focus is on establishing your career and protecting your personal finances. However, along the way, there may be important people in your life who depend on you financially. What if you get married, have children, have a home loan to pay, or you support your household as the primary income earner? Having life insurance is a way to make sure your family would be protected and could keep up with these expenses if you were to pass away unexpectedly.
#2 Plan for Major Life Goals
Speaking of caring for your family, reaching major life goals is a huge reason why financial planning is so important. When you think about what you want in life, including starting a family, buying a home, and retiring someday, attaining these goals depends on two main factors: saving and investing.
In addition to your rainy day savings, every young person should start a separate savings account that is dedicated to these goals. And along with savings, keep in mind that your credit is another factor that affects your future. According to Marketwatch, young adults are at the greatest risk of having poor credit, which can keep you from getting a loan to purchase a car or a home. If you’re concerned about your credit, you can get a copy of your credit report for free each year. You can also work on improving your credit score by being smart about how you use credit, such as staying under your credit limit and always paying bills on time.
Another mistake that young adults commonly make is thinking they should wait to invest or save for retirement. You don’t need to have a ton of money coming in to start deferring some into a retirement fund and even start making small investments. And if you already have a retirement account, CNBC cautions against withdrawing from it too soon.
#3 Set a Budget to Keep Your Spending Smart
Setting a budget that keeps your spending on track is the glue that holds this whole plan together. After all, if you have debt or live outside your means, it’s much harder to save money for your life goals. Along with everyday spending, it’s just as important to be careful about big purchases. For example, you should calculate how much you should spend on a home so you don’t become house poor.
This isn’t to say that you shouldn’t invest in those major life events, like buying a home and starting a family. These things are exactly why you want to start out being money smart now rather than waiting. When it comes to finances, time is on your side. All you have to do is make the most of it!
Leaving college and entering the “real world,” I learned a valuable lesson in the perils of not budgeting or saving. As a result, I’ve dedicated my life to writing about finances in my spare time in an effort to help others. I created Adulting Digest to help others who need help navigating the world of adult finances.
Contributor: Christopher Haymon
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