- Aim for a positive net worth. This might seem nearly impossible, especially if you are just coming out of college and have a frightening amount of debt from student loans, living expenses, and a lack of income. Many millennials end up in large amounts of consumer debt from reckless spending, lack of education when it comes to the consequences of irresponsible financial decisions, and the desire to seize all that their younger years have to offer. Rest assured, your negative net worth can easily be turned around. Set up a repayment plan for your debt. Use online tools to help you plan how you will pay off what you owe. Focus on your bills that accrue the highest interest charges monthly. Paying off your debts will increase your net worth. And, increasing your assets, such as saving money and investing properly, will help as well.
- Keep an emergency fund. Life throws unexpected expenses at us. In these cases, adulting is hard! But, keeping a reasonable amount of money, set aside for unexpected expenses, can ensure that the curves that life throws at us sometimes don’t affect your budget or cause your extra debt. Try for one thousand dollars. Emergencies such as doctor bills, car repairs, extra expenses with a kid or pet can all be covered with your emergency fund. And, as your financial situation improves, aim for three to six months of your net pay to be kept in the emergency fund.
- Create a budget and reduce spending. Set short term and long-term goals to works towards in the future. Create a budget that allows you to pay your bills on time each month and have some extra money left over. Talk to a financial planner about creative ways to reduce your spending, save money, and invest in your future.
- Start your retirement planning young. Of course, the last thing you are thinking about right now is retirement. But, this can be one of your biggest mistakes. If your company offers an employee sponsored retirement account such as a 401k, 403b, or a Simple IRA, take full advantage of these opportunities. Make sure you are contributing enough to participate in any employee match program that is offered. And, work towards taking advantage of the maximum offering. This is essentially free money, and who wants to pass up free money?
- Invest in your own IRA. Besides having an employee retirement fund, check out your options when it comes to an individual retirement account. Whether considering a traditional or a Roth IRA, save whatever you can even if it doesn’t seem significant.
- Find a side hustle. When we are young, we have one thing on our side…energy! Now is the best time to make the most out of your financial opportunities. The most common issue surrounding debt is not having enough income to keep up and pay off what you owe. Find a side hustle that brings in an extra $500-1000 a month. In some cases, individuals can turn their side hustles into a full-time career that they love.
- Cover your rear. To put it nicely. Cover yourself! This means investing in insurance throughout various parts of your life. Protecting yourself, your family, and your assets is important. Invest in life insurance to protect your dependents should something happen to you. Secure disability insurance through your job so you won’t suffer financially should you be out of work for medical reasons. If you own a home, invest in home owner’s insurance. And, whether you think you need it or not, invest in renters’ insurance if you are renting. Finally, it might seem crazy to think about but begin your estate planning and will at a young age. We never know where life will bring us. Make sure that if something happens to you, your assets and wishes will be executed exactly as you would want.
It might be difficult to imagine buckling down financially when you are still in your twenties. There are so many first to focus on, first house, first vehicle, first child, etc. You are filled with energy and adventure and want to explore the world! And, your mind is so consumed with all the exciting goals and opportunities that your future holds you end up feeling overwhelmed and unable to manage life’s biggest decisions. Although life, and especially finances, may seem to be a big mountain to climb, there are many steps you can take when starting out that will solidify your future success when it comes to financial freedom in your older years.