Personal financial management is a subject that is not taught in many schools, but is something that nearly everyone has to deal with in their lives later on. Here are some statistics: Some 58% of Americans do not have a retirement plan in place for how they’ll manage their finances when they get old. While people generally believe they’ll need about $300,000 to support themselves in retirement, the average American has only about $25,000 saved at the time of retirement. Average household credit card debt among Americans now stands at a distressing $15,204. If these facts are alarming to you, and you want to reverse the trend, read on for specific, targeted advice geared towards giving you a better future.
Start Saving Early
It’s important to get in the habit of depositing money into your savings account as soon as possible. The earlier you begin this habit, the more likely you’ll be to continue it. Whether you’re saving for your future, a rainy day or a big trip, try getting as much money into your account as possible. You may want to set up a direct deposit into your savings account each month to ensure you’re depositing it each month.
Keep an Eye on Your Credit
Your credit score is one of the most important pieces of information others have access to. It’s important to begin building credit as soon as possible. Try to open a few credit cards with low interest rates and keep a low balance on each one. Make sure you pay off the majority of the card every month while keeping a small balance on each one. This is a great way to show creditors that you’re responsible with your credit.
Talk to an Investor
It’s just as important to begin investing money as it is to save money. The earlier you begin investing, the sooner you’ll start accruing compounded interest on your investments. Try speaking to an investor to determine which types of stocks and accounts are best for someone with your income level and your age range.
Look Into Life Insurance
Life insurance is important at every age, and it’s not just for the old or sick. What would happen to your family if you were to suddenly pass? Who would pay your debt? Who would pay for your funeral expenses? The average funeral can often cost up to $10,000. You don’t want your family to be on the hook for these expenses without any backup plan. You also don’t want them to worry about choosing between the funeral you would want and the funeral they can afford.
Buy Used Vehicles
Many young professionals make the mistake of buying or leasing a brand-new vehicle. Yet this time in your life isn’t always the best time to make these types of purchases. Try investing your money on things that will appreciate over time—not depreciate. Unfortunately, things tend to depreciate more often than investments.
Another mistake most young professionals make is purchasing a home too soon. You want to be in a financially stable position before making this decision. You don’t want to buy a house in one city—only to move to another city in a year or so. Try to wait as long as possible before buying a home. At least wait until you’re in a financially stable enough place to buy a home or until you’ve found a home that you’ll be satisfied with for many years to come.
Spend Money on the Things You Need
Some young professionals make the mistake of not spending money on anything. Spend money on the things you need. If your dishwasher breaks, buy a new dishwasher. If you need a new suit for work, buy a new suit. If going on one vacation a year makes you happy, go on that vacation. Don’t live in a place of scarcity. Spend money when you need to spend money, but ask yourself if spending that money is really what you want. Don’t spend your money recklessly; simply spend your money freely but wisely.
Manage Your Debt
While it’s important to have credit cards with low balances, it’s also important to keep an eye on those balances. Manage your debt wisely to ensure it doesn’t take over your life. The reality is that everyone has debt. Many young professionals have student loans they need to pay off. Defer the loans if you need to defer them, but don’t allow the deferments to go on until the last possible moment. Make a plan to pay off your debt as soon as you can.
Don’t Rely on Mom and Dad
It’s easy to want to ask Mom and Dad for a loan to make a down payment on a house or car. It’s equally easy to ask them to help you pay off your debt. Yet the sooner you can cut the financial cord from your parents the better off you’ll be in the long-run. Breaking the habit of asking your parents for help can take you from a financial zero to hero.
Keep Track of Your Records
Make sure you know exactly where your birth certificate, social security card and tax documents are. If your parents have these documents, ask for them. You should be the one to hold on to the originals.
Elena Kiam focuses both professionally and philanthropically on creating opportunities for others entering the workforce or at career crossroads.