Welcome to adulthood! While there are many freedoms and opportunities to look forward to over the next several decades, you’ll also face some essential responsibilities if you want to ensure your financial well-being. By starting young, you can establish healthy money habits that will help you for the rest of your life. In this blog post, we’ll explore critical financial habits and actionable tips to help you achieve financial security and success.
Budgeting is the most important money skill you need to learn. Whatever you want to do with your money, managing it through a budget can help you reach your goals.
There are five main steps involved in budgeting:
An emergency fund is one major line item every budget should include if you don’t already have one. Life happens, and it tends to happen at the most inconvenient times. An emergency fund helps protect you from financial ruin when unexpected expenses arise.
Generally speaking, a healthy emergency fund is between three to six months of expenses. However, saving this much money can be intimidating when you’re starting at zero.
Starting with smaller goals can build momentum and confidence. Start with a goal of $1,000, setting aside as little as $20 per pay period. Saving money automatically is crucial to remove the burden of remembering to save. You’ll be surprised at how quickly you can build your savings to a healthy amount.
Whether you have student loans or a credit card balance, paying down debt is necessary for financial adulting. Debt almost always comes with interest. The longer you take to pay it off, the more interest you’ll incur.
There are two main methods for paying off debt:
Mathematically speaking, the debt snowball method is best. This method will help you pay the least amount in interest, saving you money in the long run. Psychologically speaking, the debt avalanche method works for more people. The small wins you get early on by paying off those small debts can motivate you to keep going until you’ve paid off the larger ones.
Adults need insurance. It’s important to determine your needs and budget, such as the type of coverage you need and how much you can afford to pay for premiums.
Don’t forget to read the fine print and understand the terms and conditions of the policy, including the deductible, coverage limits, exclusions, and other important details. Consider bundling multiple types of insurance with the same insurer to get discounts on your premiums. However, don’t sacrifice coverage for a lower price.
Remember to review and update your policy regularly to ensure that it continues to meet your changing insurance needs.
One of the most powerful ways to build long-term wealth is by starting your investing journey young. The longer your money is in the market, the longer it has to earn compounding interest.
Investing just $300 per month starting at age 20 could lead to more than $1 million at retirement. Don’t forget to do your own research and speak with an investment professional for more information.
To achieve financial stability, it’s crucial to build a practice of learning about finances. Personal finance is personal, and financial literacy is a continuous process, not a one-time event. As you face new financial situations, you’ll need new money management skills to adapt and make informed decisions. It can also help to talk to a personal finance expert. You can get free financial coaching through the Payactiv app for customized financial guidance. To stay on top of your financial education, download the app in your app store and access a wide range of resources and tools to monitor your finances and improve your financial knowledge.
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