Starting your life’s journey as a young adult is exciting, but it can also generate a lot of confusion. Should you follow your passion or take the steady job with good pay? Move to a big city or live somewhere less expensive? We may not be able to help you answer all of life’s big questions, but we can show you how to build a strong financial foundation. Follow these tips to get your finances in order and get yourself on track to reach future goals If you have any questions, our staff is always ready to help!
Net worth = (savings + assets) - debt.
In addition to the money you have, you need to think about the money you owe, such as student loans.
How to think about debt
Credit cards can be helpful if you can use them responsibly and pay off the balance each month. Opening a credit account can help you build a positive credit history and score. You may also be able to accrue points toward cash back or travel rewards.
Student loans aren’t always “good debt,” especially if the balance swells with compound interest while you are in school or on deferment. A high monthly payment can be a burden on young, entry-level workers, so make a plan to get ahead of your student loan debt now. For example, could you take on a second part-time job or side hustle and devote that income to making extra debt payments?
Building an emergency fund
One thing every financial expert agrees on is the need for an emergency fund. Most people recommend saving six months of living expenses in case you lose your job, but even $500 or $1,000 set aside for a rainy day will help when unexpected expenses inevitably arise.
Investing for Retirement
It’s never too early to start saving for retirement. These days, investment accounts comprise the main source of retirement income for anyone who doesn’t have a defined benefit pension. Does your employer offer a 401(k) match? That’s a no-brainer to sign up for.
Create your first budget.
You may think that checking your mobile banking app is the same thing as “seeing where your money goes.” However, tracking your spending after the fact is not the same thing as proactive budgeting. Without a plan in place, you may not be very mindful about where your dollars and cents go, leading to waste and skewed priorities.
Of course, it’s one thing to make a budget, but it won’t be much help unless you actually use it. Remember that a budget isn’t a legally binding contract. You can adjust as needed throughout the month. If crunching the numbers doesn’t bring you joy, trying turning it into a game. Here are our favorite ideas:
- Budgeting by spreadsheet: Microsoft Office has a variety of free Excel budget templates to choose from.
- Budgeting by app: Popular budget apps that require a membership fee include You Need A Budget or EveryDollar.
- Budgeting by pen and paper: If you want to budget the old-fashioned way, all you need is pen and paper. If you’re feeling fancy, get yourself a ledger book. Start with your gross income for the pay period or month and subtract all your fixed expenses (rent, bills, transportation, etc.). Then you get to decide what to do with what’s leftover. Before you treat all of that disposable income as, well, disposable, make sure you’re allocating money to your savings goals.
Whether you choose to budget by spreadsheet, app, or ledger book, think about how you can make budgeting more fun. For example, set a weekly budgeting date at your favorite coffee shop. Identify inexpensive ways to reward yourself for staying on track, such as a $5 bouquet of flowers or fancy espresso.
Understand your credit history and current score.
When you’re just starting out in life, you may not have much of a credit history yet. Or perhaps you mismanaged a college credit card and need to repair your score. Regardless of your current situation, your credit history and score will be an important factor in many life events, from renting an apartment to getting a car loan or mortgage. Luckily, you can access your credit report and track your credit score for free:
- AnnualCreditReport.com is the only website authorized by federal law to provide free credit reports every 12 months. During the COVID-19 pandemic, you can access free weekly online reports through April 2021. Compare reports from the three major credit bureaus (Equifax, Experian, and TransUnion) and make sure there are no signs of error or identity theft.
- Credit Karma and Credit Sesame are free apps that provide regular updates on your estimated credit score. It doesn’t hurt your score to use these apps. You will also get an analysis of the factors impacting your score and what you can do to raise it.
Set life goals.
Everyone will need to retire someday, so make sure you’re contributing to your 401(k) or another employer-sponsored retirement account. If your employer offers a match, you should contribute at least enough to get the full match. Otherwise, you’re leaving money on the table. If you don’t have a retirement account through your job, set up an Individual Retirement Account (IRA) to enjoy tax-advantaged retirement savings.
Beyond retirement, your life goals could vary depending on your own personal bucket list. Whether you hope to buy a house, save for a wedding, travel the world, or more, the first step is to open a savings account and start depositing money to reach your future goals.
Our staff is ready and eager to help!
You know where you’re headed. We can help you create a financial plan to get there! Call or visit your nearest Dieterich Bank location in Illinois to receive personalized financial advice and open a new checking or savings account today.