As a young adult, I know first-hand what it’s like to get slammed with life immediately following college. For many, that same situation presents itself much sooner—after high school. There are important decisions to be made involving your career, location, and residency. On top of all that there are continued bills to pay and possibly other choices to make like the decision of marriage/starting a family etc. The more you grow out of your teenage years, the more necessary it becomes to know how to be smart with your money. The greatest thing you can do is pave the way for a stable foundation. Here are some ideas I hope will help put you on the road to success.
Eventually, you’ll want to become a homeowner or buy that new vehicle you’ve had your eyes fixated on. To do this probably will require your securing an auto loan or mortgage. The only way you can ever qualify for the best possible interest rate is to start off with a solid credit history. This is why a lot of the times you’ll initially have your parents be the co-signers because they have that established credit (and also why they’ll be nervous to do so haha!). I didn’t have a credit card in college (easy to obtain as a student), so I used my mobile carrier as my starting point when I broke away from the carrier’s family plan and paid for the account on my own. You can do this with other recurring bills such as your cable TV/internet, should you be in that same vote. Of course one other option you have is to apply for a card where you make a deposit in a savings account as collateral and then you get that money back if you use the card responsibly after a set period of time.
If you can’t afford something, move on and don’t buy it. Just because you may have a credit or debit card doesn’t mean you have to use that piece of plastic each time you wish you had something. A healthy attitude is to consider those objects a financial tool. At the end of the day, you still have to pay for anything you purchase with them. This is where a lot of people get into trouble because they either a) don’t keep track or b) delay the payments. Credit card companies love that but then think about all the money you’ll eventually be putting out in interest payments and penalties—money you don’t have, making it harder to get ahead to where you want to be in life. And while on the topic of credit cards, you should make sure you pick one that doesn’t have an annual fee or penalize you for paying it off on-time. It’s also helpful if it carries bonus/reward points because those are programs you can use to earn cash back. If you have to borrow money, it should only be for things that have lasting value, such as homes (mortgages), education (student loans), etc.
Learn to Save!
While there is no magic formula for figuring out how much money you should have in a reserve, it’s a pretty good rule of thumb to at the minimum, be able to afford 3-6 months worth of mortgage/rent/bills/car/other financial payments just in case a rainy day or an emergency does come along, though that is certainly easier said than done (especially if you’re just starting out or supporting a family). Some of my friends have said they find it hard to save because it’s easier to draw from a checking account when you know the money is there. One thing you can do to get around this form of temptation is to simply make arrangements with your bank/employer to have a % of your pay check get directly deposited into some sort of savings account. Let that fund grow because later on, once you have enough established, you can pull from it periodically to enjoy things such as a vacation (just realize you have to do so sparingly; it’s easy to spend, but it takes longer to save up).
Make Plans & Commit!
Leaving college with credit card debt? Devise a plan as soon as you can to pay it off. Otherwise you’ll be dragging that dead weight around with you for many years to come. It’s also very healthy to have goals in life. And the best way to reach those financial goals is to budget for them. This way you know the realistic costs and can project how long it’ll take you to reach them based upon your own financial situation.
Invest in a retirement plan & experience the magic of compounding interest. Look at Roth accounts because earnings on those investments are tax-free. Here’s an example, say you put $300 away a month into an account that boasts an average annual return of 7% from age 23 on, by age 65 you will have earned $888,395.39. Do the same but starting from age 33 and you will have only earned $424,560.33. Always invest in your company’s plan first because if they contribute, that’s free money you’re getting. You’ll also want to consult with a financial adviser over what, if any, additional steps you may want to think about in order to safe guard your retirement.
Keep a well-maintained record of your expenses and income. Not only does this make you aware & alert but it also allows you to know where every important document is at a moment’s notice. File your bills by vendor and keep your rotation in check by cycling them in/out by year (assuming you don’t need to retain them, throw out last November’s when you add this November’s to the envelope/file folder). Things that are a good idea to save include: contracts, banking/credit card statements, utility invoices/bills, jury duty summonses (since you can only be asked within a specific time period), motor vehicle registration information, pay stubs, social security earnings reports, insurance policies & information, notes on any vehicle/equipment repair, all home improvement receipts, any certificates/necessary background checks, school transcripts, tax records, home inspection documents, mortgage paperwork, any kind of title/deed, your diploma, birth certificate, SS ID card, if male-your selective service acknowledgement card, any IRS/legal documents such as DNR/living will/last will & testament etc., savings bonds, bill of sales, employment HR handbooks & policy guides, and finally, any extended warranties & product manuals (especially for items like appliances/home entertainment systems). It’s also a good idea to keep track of all your financial actions—maintain a monthly checkbook. Reconcile it with the arrival of your banking statement and double check any credit card purchases against the receipts you save. For some of these items, you’ll want to safe guard them with more protection than others.
Find & Develop A Marketable Skill!
Luckily, we live during a great time that makes it possible to harness the power of the internet with all of its uses and users at our fingertips, thus immensely cutting down on the work (and costs) associated with advertising/marketing while making it possible to formulate profitable solutions/startups. Branch out and network! Connect with others while you’re young, cultivating those relationships while you have the free time to do so (see my blog post on networking here: https://steventrauger.com/?p=332). It is those individuals who will be the ones most likely to assist you with any future marketing needs you may encounter (remember, the most powerful form of advertising is word of mouth). Your true earning power lies in your education and job skills. Knight Kiplinger, the editor-in-chief of Kiplinger.com states those are the, “most valuable assets you’ll ever own.” Be sure to invest in yourself in order to gain the skills that will help jumpstart your career & boost your earnings. It’s also a good idea to look at your hobbies and realize when there is earning potential there, too. I mean, why not if you enjoy it, right? For example, my marketable skill happens to center around my production expertise and the services I am able to provide or connect others to. For me, it’s much more than a hobby—it’s a way of life. For some of my friends, their extra earning potential lies within their skills as graphic design artists, website developers, photographers, consultants, and sales agents. What makes those types of skills so desirable is that, unlike most hobbies, theirs are backed by real world earning potential, thereby making it possible to even become a primary source of income if ever necessary while also providing a source of enjoyment/relaxation.
When picking your spouse/partner, be sure to make a sensible decision. It’s okay to be picky! That person should be your best friend in life—someone whom you can always trust to give/share honest advice and hold open communication with. You’ll work together towards common goals, which is why it’s important that you share similar financial values. Never keep money secrets from each other and make sure you base your love on more than just attractive looks (because divorce can be costly, plus looks fade but a person’s inner beauty never does).