How to be Proactive with Your Finances as a Young Adult
For recent college grads, newly married couples, and young professionals alike, it can be difficult to build wealth or even know where to start. Whether it’s learning how to invest, establish good credit, or decipher which retirement plan is best for you, there are many boxes to check when building a flourishing financial future. Don’t panic; we’re here to help!
Here are several steps you can take…
1) Set realistic short-term and long-term financial goals.
What do you want to achieve financially in five years? Ten years? By retirement? Creating attainable goals for where you’d like to be in the future is a great place to start at here and now. Click here to learn more.
2) Balance your bank account and use a budget sheet.
Sometimes you fail to realize how much you’re spending, which is why it’s crucial to balance your bank account monthly by comparing the money coming in with the money going out. Then, you can utilize the budget sheet to outline each expense, especially those miscellaneous ones. Click here to learn more.
3) Store an emergency fund.
You’ll need money for unexpected life events like car repairs, home repairs, and medical emergencies. Pay yourself first by setting up automatic savings each month and ensuring you’re prepared for these emergencies. Click here to learn more.
4) Establish good credit.
Improving your credit score strengthens your ability to rent an apartment, apply for certain jobs, buy a car, etc. Just remember that establishing good credit means paying your monthly bills on time and spending only 30% of your credit limit. Additionally, you’ll want to regularly check your credit report with free resources such as TransUnion or Credit Karma. Click here to learn more.
5) Understand your employer’s benefits package.
Your employer may offer health insurance, stock options, or 401(k) plans. They may also offer a Health Savings Account (HSA), which is comprised of both employee and employer contributions, covers qualified medical expenses, and grows your money tax-free. Make sure you ask questions, know your coverage, and understand any fees that come with these benefits. Click here to learn more.
6) Save for Retirement.
If your employer offers a 401(k) plan, take advantage of it by contributing the maximum yearly limit ($22,500 for 2023) as well as the full match amount. If your employer does not offer a 401(k) plan, consider setting up a traditional or Roth IRA. Click here to learn more.
7) Purchase life insurance.
When you purchase life insurance at a young age, your insurable interests (anything subject to financial loss) are protected in the event of an accident. Beyond the value of this protection for you and your loved ones, other positives include: some premiums are lower for younger individuals, policies extend to certain medical problems, and you can apply the tax advantages of having a policy to your total cash value. Click here to learn more.
8) List your beneficiaries on your accounts.
Listing beneficiaries on your retirement accounts, life insurance policies, and bank accounts ensures that if something happens to you, your money will be distributed to those you designate. Otherwise, your loved ones will need to go through probate, a court-supervised legal process, to become a personal representative of your estate, and this requires extra time and money. Click here to learn more.
9) Consider a 529 College Choice plan for your children.
If you’re starting a family or already have children, a 529 plan is a great, tax-advantaged method to pay for their education. Click here to learn more.
10) Protect your data and prevent identity fraud.
As you build wealth, don’t forget to keep your accounts secure. Click here to learn more.
The Most Important Step: Keep Learning
It can be overwhelming to keep up with ever-changing tax laws, investment benefits, and the minutia of tracking your spending habits, but it’s important to maintain a positive mindset throughout the process of building your wealth. As the financial world changes—and we know it often does—remember to keep sight of your goals and take a steady approach to continual education.
Helpful Tools
There are a plethora of resources at your disposal that make building your wealth an easy process. Here are a few of those…
1) Retirement Calculator:
This tool allows you to estimate your retirement savings by plugging in your goals, assessing your annual contributions, and testing out different scenarios to see what works best for you.
Click here to access the Schwab calculator.
2) Credit Monitoring Services:
These services allow you to monitor your credit and request alerts when there are signs of identity fraud.
Click here for a list of credit monitoring services.
3) Budget Sheet:
A budget sheet is critical for tracking your spending habits.
Click here to view or download our budget template as a pdf.
Click here to download our budget template as an excel sheet.
4) Other budgeting tools:
With spreadsheets, desktop software, and smartphone apps, budgeting is even more accessible.
Click here for a resource with other budgeting tools.
Have questions? Or interested in a consultation? Click here to contact us now. Or click here to learn more about our Financial Planning and Investment services.
Blog by Kiran Sharma – Financial Advisor
Learn more about Kiran and the rest of the Storen Financial team here.