No one said being an adult was easy. You have to go to work every day, clean up after yourself, pay bills, save for retirement, and everything in between. Taking on financial responsibility is a crucial part of adulthood. The earlier you get your finances in order, the better off you’ll be (especially in the long run). From making a budget to protecting your identity to creating an emergency fund, there are important steps to take to create financial stability. Finding motivation to work and keep your house clean is another topic for another day.
Make a Budget
The first step in creating a budget is to determine how much money you’re bringing in every month. Be sure to use your net income to avoid overestimating your funds. Next you’ll need to track and categorize your spending. You can do this using simple pen and paper, an Excel spreadsheet, or an app like Mint. Include fixed and variable expenses. Look back at previous credit card and bank statements for an itemized list of previous monthly expenditures.
Lastly, set goals and make a plan to reach them. Cut back on spending, pay off credit card debt, and make all payments on time to avoid fees and an unnecessary increase in interest rates. Setting up automated payments is a great way to ensure payments are made on time. You can also utilize online payment portals for convenience.
Protect Yourself and Your Finances
Monitor your checking and savings accounts regularly, as well as credit card and investment accounts and credit reports. Immediately report any unfamiliar transactions, even if the amount seems miniscule. “Identity thieves often ‘test’ the credit or debit card to make sure it still works before they complete a larger transaction,” warns Next Advisor.
Take note of who has access to your personal information. Doctor’s offices, grocery stores, employers, department stores, family, and friends all have some level of access to your personal information. Most of these exchanges are innocent, but be aware of them. Only enter personal information on secure websites, and don’t trust anyone who asks for your personal information via email or phone. Keep devices protected, and shred any documents containing personal information.
Plan for Emergencies
Setting aside money for emergencies is a crucial part of being financially successful. How much you need to set aside will depend on your financial circumstances, but a good rule of thumb is to have enough to cover three to six months’ worth of living expenses. This amount is useful if you were to ever lose your job or become temporarily unable to work.
Since you’ll need quick access to your cash (hence the term “emergency funds”), store your money in a savings account. Aim to have a $500 starting off and work your way toward saving more. This amount will help you get out of small emergencies, such as a broken washing machine or a blown tire.
Plan for the Future
Even if the thought of having children isn’t on your radar, you may want to consider setting aside some money for them sooner rather than later. You know you’ll need to help pay for their college, but children cost a lot of money before they ever reach college years. Your insurance premiums and deductibles will increase, and you’ll need to pay for child care, diapers, wipes, clothing, baby gear, formula, and food. And that’s just the first year! Not to scare you, but that’s quite a hefty bill.
While a 401(k) is one of the most popular ways to save for retirement, it’s not the only way. A 401(k) is convenient since it’s automatically withdrawn from your paycheck. It also has tax benefits, and your employer may match contributions. Other options include a Health Savings Account (HSA), Roth IRA, or a traditional IRA.
Adulthood brings a lot of responsibilities. The decisions you make now will affect you for years to come, and some decisions will affect you far into the future. This is why getting a good grasp on your finances early is so important. Along the way, you may just finding the motivation to clean your house and stop pressing the snooze button so much on the weekdays.