When a person is finally thrust into the “real world”— whether they are 18, 21 or 23 — they quickly learn that there are some things in life that just weren’t taught in school.
Perhaps that’s why “adulting” is so hard. Sure, you might have been taught how to balance a checkbook or do your taxes. But how are you supposed to navigate the tough financial questions, such as “when do I invest and when do I save?”
Once you’ve finished school and have landed your first job, there are a lot of long-term financial questions to think about. We’ve compiled a list of six “grown-up” things everyone should consider financially when you’re first venturing out on your own.
First thing’s first — health insurance. For a young person, this can seem like the least of your worries.
But your health is no joke — when you’re beginning to build your financial foundation, health should be the very first thing to protect.
Yes, health insurance can be expensive. But, so are uncovered medical bills — which are one of the top reasons why people go bankrupt. All it takes is one freak accident or an unexpected diagnosis for your life, and your finances, to change if you aren’t prepared.
The laws for auto insurance vary by state, but no matter where you live making sure you are properly covered should be a priority.
Think about how often you drive each day. Not only do most people spend a lot of time in their cars, but a vehicle is often is a young person’s most valuable asset. Plus accidents happen, and by their very nature are unplanned.
You are most likely required by law to have liability insurance in case you cause harm or damage to someone else or their car, but you should also consider collision and comprehensive insurance to cover damage to yours.
Organize your bank accounts
You probably already have a checking account but now that you’re an adult with a job, you should also get a savings account. Savings accounts can be used for many things from covering unexpected expenses to saving for a down payment on your first house.
Either way, we recommend saving about 20 percent of your income to start building an emergency fund. It’s best to keep this money in a separate account from your checking to make sure you don’t touch it unless you have to.
You’ll also want to start using a credit card to help build up your credit score. This can really help set you up to qualify for a home loan or personal loan down the road.
But remember, only spend what you know what you can afford. Pay off your credit card monthly and only use it to improve your credit score and get cash back.
If you’re renting an apartment you might assume that your landlord’s got you covered under their insurance policy.
But think again. Although they insure the actual physical building, your landlord’s insurance will not cover your personal belongings in case of hazard, theft or emergency like a renter’s policy will.
Renters insurance is one of the cheapest insurance policies you can get — with premiums that average about $15 or $20 a month — but it can save you thousands if things go bad.
Does your job offer a 401k plan with an employer match? If so, jump on this opportunity…it’s free money!
When you’re early in your career, retirement might be the last thing on your mind. But we recommend opting into your 401k plan as soon as possible, as your portfolio can really begin to grow month by month.
Plus, due to an investment concept called compounding, the earlier you begin investing the better. If your employer doesn’t offer a 401k, start your own Roth IRA. Waiting a few years to begin investing when you feel more “ready” could mean missing out on thousands, and potentially hundreds of thousands, when it comes time to retire.
Pay off your debts
Millennials hold a record high amount of debt, with the average 2017 college graduate carrying more than $38,000 in student loan debt.
In conjunction with the previous steps, it’s time to focus on eliminating that debt. It’s not just student loans — I’m also talking about credit card debt and other forms of debt.
The question of paying off your debt versus investing or saving is a tricky one and usually the answer is different for different people. The general rule of thumb is if the return you are getting on your investments is higher than the interest you pay on your loans, then it makes more sense to put more towards investing and less towards debt service. Contributing to a 401k to capture the employer match usually makes more sense than paying down some types of debt like student loans. Credit card debt, on the other hand, may be a different story.
To those of you just entering the workforce, getting your finances straight is not something you figure out overnight. But prioritize these six must-do steps before you go off making any large, spontaneous purchases and you will be on the road to financial independence.
Let CommunityAmerica be your one-stop resource to build your financial plan. Meet with a CommunityAmerica Financial Relationship Specialist, at any one of our branches, about reducing your debt. Speak to a Financial Advisor about starting an investment account or talk to one our Registered Insurance Agents about protecting your future.