Everyone gets so uncomfortable talking about finances, myself included. No one wants to seem like they aren’t spending their money wisely. This makes it difficult for young people who are trying to create a financial safety net for themselves. I don’t mind being open about some of the lessons I’ve learned in the past few years on managing a full-time salary. I’ll be the first to admit to I’m not a finance guru, but these are some things that have really found helpful.
Create an Emergency Savings Account
The name should explain the purpose of the account. Instead of swiping your credit card for all of your adulting inconveniences, use your emergency savings. So when you need new tires on your car or have to pay for a speeding ticket, having that savings can keep you out of debt. A general rule of thumb is to use your real money first instead of borrowed money. Another rule is to put 20% of your paycheck into your savings. I know that’s easier said than done sometimes, but it's worth it.
Personally speaking, using my emergency savings has helped me a lot more than a credit card. I have an amount automated from my checking account when I first get paid so I don’t even miss the money. Using automated features are great when you don’t have time to check everything in your accounts every month. It does take a couple of months for it to build, but you will thank yourself so much later when you can just pay for things without having to make additional arrangements. For example, if you put away $200 each month, you’ll have over $2K.
Lastly, finding the right type of savings account will make a big difference. I’m pretty self-disciplined so I can use the same bank for multiple accounts. For those who aren’t as disciplined, I advise getting a different bank. Having a larger separation of funds could keep you from making a quick transfer for impulsive purchases. Also, having an account that’s not attached to your debit card could go a long way.
Find Out Your Credit Score
This is an easy one. There are so many places that will give you your credit score, but it’s important to know that you have a different credit score from the three credit bureaus: Experian, Transunion and Equifax. Knowing these scores are important before you get any type of loan, credit card, even a new apartment or internet. CreditKarma.com is a great option if you have never checked your score before.
I have my access to credit score 24/7 with my bank accounts and credit cards. Each month I’m notified of when my score is updated. I cannot stress enough how imperative it is to know your score as a young person. We are in such a transitional state in our lives so unless you were born with a silver spoon, you’ll need to have good credit. If you don’t have any credit, it’s okay. Do some research on credit cards and see what would be a great fit for you to establish some credit. I’d suggest finding a credit card that can give you your credit score for free, a manageable credit limit and no annual fee!
Make a Plan for Your Student Loans
The thought of paying back my student loans makes me quiver. The principle, the interest rate, the amount of interest accrued can get me really overwhelmed. As awful as it can be to owe someone this large amount of money, it’s imperative that we 1) know exactly how much we owe and 2) have a contingent repayment plan.
After you find out the amount you owe, you have several options. You can find a third party to consolidate your loans with the hope of a better interest rate. You can find do research for employment opportunities that will assist you in repayment. The biggest thing is to make sure you know the amount you are expected to pay monthly. If possible, it will help you the most to make payments while you’re still a student. These payments will go towards the principle. If you graduated, pay above the minimum payment. This will help you pay off the loan faster, with less interest and it will increase your credit score. Try to avoid missing payments and stay in communication with your borrower if there’s a change in your employment status or income. They will only help when you’re proactive about these things. So all in all, create a plan. Even if it’s a plan that you can’t act on immediately, making one will help prepare for what’s to come. Don’t allow yourself to drown in student loan debt.
Get a Second Checking's Account
This one may sound confusing at first, but hear me out. You should find a different bank to open a second checking account. Find a bank with benefits that your current bank doesn’t offer you. Some may offer a bonus for opening an account. Some may allow you to check your credit score for free. Some may have more ATM’s in your area. Do the research for what you could actually benefit from. Having a second account could also help you
Each month, I have an amount automated from my main account to my second account. The main one is used for bills and other monthly expenses. The second one is my “fun” account. It is the account I can use to waste on whatever I want and not feel guilty. Online shopping, fast food, movies, etc. all of the stuff we do but don’t necessarily keep a good track of until it's too late. This helps me manage my money because I plan on how I want to spend the money in the second account. When I start to get low on funds, I know it’s time for me to calm down cause that money needs to last me all month. It helps me stay disciplined. I let the two accounts do that for me.
Make an Individual Retirement Account
Although we haven’t got into our earning years yet, creating a plan for retirement can have a huge impact later down the line. Creating an IRA will help you do just that. With having a full-time job, most companies will offer you benefits such as a 401K which is also retirement savings. Having your own retirement savings in addition to your 401K could potentially double your savings when you retire. If you don’t have a 401K, it's even more important that you look into doing some sort of saving with retirement benefits.
I haven’t created an IRA yet but I definitely plan on it in the next year. If you start saving at 25, it is estimated that you will have $1 million at age 65 if you make deposits consistently. This could be a great deal to have when you’re looking to retire. Millennials are changing the workforce by having multiple sources of income so sometimes having a 401K isn’t enough if you have multiple jobs. Also, there is no guarantee that Social Security benefits will be available for us by the time we retire so take your retirement into your own hands and create an IRA.
Regardless of where you are in your finances, it’s always important to examine your finances and create some sort of budget. This is especially true if you are in debt… student loan debt to be exact. Whatever you do, do something. Find out what works best for you and run with it. It may seem terrifying at first, but the more you prepare, the less work you have to do later to get your finances in order. Don’t feel overwhelmed. It’s okay if you haven’t started on some of these things. Now that you do know, you move forward in making wise decisions for your financial future. You can learn more about IRA’s here.
What are some of your best finance tips?