How to Establish Financial Health
Research indicates that nearly ½ of all young working adults ages 21-32 are living paycheck-to-paycheck. Comfortable with this way of life? You shouldn’t be! Just because you don’t own a home, carry heavy debt or have many expenses doesn’t mean you’re off the hook for budgeting and financial planning.
Financial institutions and planners may suggest you begin thinking about your financial future before beginning a job search because it will help you establish goals and make better choices about salary and benefits. However, young adults should start establishing financial health well before entering the workforce, like when they move out of their parents’ house or start supporting themselves in college. Regardless of your time in life or unique situation, it’s never too early to set a defined budget to support you through life’s decisions and events.
Here are 5 financial health tips for Generation Y-ers and Millennials…
Avoid credit card debt: Your 20’s and 30’s can present hard times on finances. You probably need to pay rent, make car payments, etc. At the same time you, could be at the lower end of your income potential, so funds may not be available to cover all of your expenses. Cut out unnecessary expenses to avoid racking up debt. If you have credit, respect it, and if anything use lines of credit for emergency situations only. If you don’t, consider starting to establish credit because it’s the backbone of making bigger financial decisions in the future.
Budget: This one is a given, but oftentimes the trickiest to achieve. Budgeting isn’t always straightforward when your finances fluctuate and spending habits change. Get organized to gain a clear picture of where money is going on a monthly basis. Prioritize spending and take into account all outgoing money. Don’t just think about your rent, car payment or regular monthly bills—smaller, one-off things like lunch, movies or concert tickets add up very quickly. There are many online calculators and smartphone apps available to make budgeting easy and accessible.
Save, save, save: Covering your bases in case of an emergency or unemployment is critical to maintaining good financial health. Don’t start saving for retirement through your employer’s 401k until you’ve established your own cushion in a personal savings account. Starting a savings account early means overall you won’t need to put away as much. Prepare for the unexpected—preparedness can turn a major emergency into a minor inconvenience.
Assess education choices: It’s not uncommon for millennials in the workforce to consider going back to school. Graduate school is a popular option and comes with its perks, but this piles more debt on top of what you owe from undergraduate. Think about less expensive options like obtaining additional certifications from vocational schools. You’ll benefit greatly from the extra education, but it won’t cost you nearly as much.
Focus on career decisions: You are your biggest asset! Although you don’t know where your career path will take you, making smart decisions about how and where you earn your income is important. Make career decisions that will positively impact your financial health in the long term. If you decide to change jobs, role over any money saved in your current 401k into an account with your new employer. Remember that a generous savings account acts as a safety net if and when you decide to make a career shift.
Plan now while you have the freedom and flexibility to make changes
Whether you are a recent college grad just starting out in the workforce, married and thinking about buying your first house, or ready to start a family, you will face financial situations that demand having a well thought out plan about your budget and overall financial health. Outlining this information early on and sticking to a plan will help make life changes and decisions less stressful, much easier, and likely more enjoyable, when the times comes.
For more helpful tips on planning for your financial future, contact RiverTrace today at (804) 266-2767.