Unfortunately, personal finance isn’t a required subject in college or high school, so a lot of young adults are fairly clueless about how to manage their new-found, hard-earned income for the first time. Personal finance is something that all young adults should be educated in, and to get you started, we’ve taken a look at five important things to understand about managing your money if you want to live a comfortable and financially stable life:
Learn Self Control
Even though you can effortlessly purchase something on credit the second you want it, it’s much better to wait until you’ve actually saved up the money to make the purchase. If you make a habit of putting all of your purchases on your credit cards, regardless of your ability to pay your bill at the end of the month, you may still be paying for those items for years. If you enjoy using your credit cards for their convenience or their rewards, make sure to always fully pay your balance once the bill arrives.
Create a Budget
No matter how much or how little you make, you need to create a budget for yourself. A budget helps you determine whether you can afford to go out for dinner with friends, or if you should go home and have a bowl of soup. Most importantly, a budget provides a concrete, organized, and easily understood breakdown of how much money you have coming in and how much money is going out. A budget is an invaluable tool to help you prioritize your spending, and to help you keep your finances on track.
Pay Yourself First
If there’s personal finance fact that should be told to every young adult, it’s that you should pay yourself first. No matter how much you owe in student debt or how low your salary may seem, it’s always a good idea to find some amount of money in your budget to save a little bit for yourself every month. If you get into the habit of saving money and treating it as a non-negotiable “expense”, you’ll quickly find yourself with a nice sum of money saved. If you want to be financially independent by the time you’re 30 years old, pay yourself first.
Start Saving for Retirement Now
This may not be top on your priority list of things to put your money towards, but it definitely should be. Because of the way compound interest works, the sooner you start saving for retirement, the less principal you’ll need to invest to end up with enough money to retire. The sooner you start building your nest egg, the sooner you’ll be able to call working an “option” rather than a “necessity”.
Ready to start paying off your debt? Here are 5 ways you can quickly tackle your debt issue and take your first real steps towards becoming debt-free.
Create a budget
The first step in solving your debt is to create a budget for yourself. Make your own Excel spreadsheet, or use a personal finance application like Mint that includes your monthly income and expenses. Once a budget is established, it’s easier to break down your cash inflows and outflows and see where you can cut costs.
Cut back on your credit card spending
The easiest way to stop accumulating debt is to remove all credit cards from your wallet and leave them at home – especially when out shopping. Even if your credit cards earn you cash back or other rewards with purchases, stop spending with your credit cards until you have your debt issue under control.
Pay off your biggest loans first
You need to prioritize your debts. Sort your debt’s interest rates from highest to lowest, and then start with the debt with the highest interest rate first. By paying off the debt with the highest interest rate first, you increase the amount you pay on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your debts.
Put holiday bonuses towards paying off your debt
This is probably the last thing you’d instinctively like to do with your holiday bonus, but it can be an extremely effective way of paying down a large chunk of your debt. If your job offers you bonuses around the holidays, allocate that money toward paying off your loans. It’s more important to fix your financial situation than spending your bonus on a vacation or other luxury purchases.
Pay more than the minimum balance
In order to effectively make a dent in your debt, you need to be paying more than just the minimum balance required each month. If you’re able to afford it (and it’s within your budget), start paying more than just your minimum balance and you’ll take care of your debt issue a lot quicker.
Purchasing life insurance for the first time can be overwhelming. You’ll run into a lot of unfamiliar terms you may not understand at first. Here are a few tips that can help you create an organized approach towards researching life insurance so that you can find the policy that fits your needs best without any unnecessary hassle.
Choosing the policy type
There are two basic types of life insurance policies: term life and whole life. Term Life insurance policies last for a specific period of time, and are much less expensive than whole life insurance. This is because it usually expired before benefits are used.
Whole life insurance doesn’t expire; it lasts from the day you purchase the policy until the day you die, no matter what. The reason that whole life is so much more expensive than term life, is that it can last anywhere from a few years to a few decades.
Understand why you need life insurance
Life insurance is a serious investment, and shouldn’t be made lightly. Avoid purchasing a policy because you’ve been told that you should, because although you’ll see ads claiming that everyone should have life insurance, the truth is that it’s not for everyone.
The purpose of life insurance is to provide financial support for your dependants in the event that you’re no longer around to do so. But if you don’t have any dependants, there’s a chance you don’t need to spend your money on this. If you’re significantly contributing to or fully supporting someone else, you may want to think about purchasing a life insurance policy in the case that when you pass, they wouldn’t be able to maintain the lifestyle that you provide them.
How much to buy
They key to determining how much life insurance you need to purchase is understanding the needs of your beneficiaries. There aren’t any set guidelines on how much you should be purchasing, as it varies from person to person.
Your decision will be based solely on how much money your dependants need and for how long. Calculate the needs of each dependant annually, multiply that by the number of years they’d need support and that should give you a rough estimate of how much insurance you need to buy.