When you’re young and just starting out, managing your personal financial accounts can seem overwhelming. Between student loans, daily expenses, and increasingly costly expenses such as health care and housing, you may feel financially lost. Setting up a plan while you’re a young adult will help things get easier as you develop some experience and achieve greater levels of stability. Here are six crucial tips for creating personal financial stability in your 20s.
1. Continue to Live on Your College Budget
If you’ve just started your first professional job, the accompanying lifestyle can get expensive fast. You probably need a new car, a new place to live, and appropriate clothing. Instead of relying on your new salary, it’s wise to continue living like a college student at least until you have a plan for how to manage all of the new expenses within the confines of your existing financial accounts.
2. Temporarily Live at Home
To get those financial accounts started on solid footing, consider temporarily living at home. This will allow you to get your finances on secure ground, with the added benefit of having more flexibility to start paying back your student loan debt and come up with a budget that you can comfortably survive on.
3. Minimize Your Credit Card Debt
It’s easy for credit card debt to build up after you finish college, especially when your expenses are increasing but you’re living on an entry-level salary. It’s important to keep in mind that credit cards generally come with high interest rates if you don’t pay the balance off in full each month. Unless you have an emergency, it’s wise to stay away from credit card debt completely, although you should have a card in your name to build your credit history.
4. Pay off Existing Debt
Sometimes it’s not possible to pay off your credit cards each month, so if you’ve already built up debt, you should come up with a budget to pay it off as soon as possible. In order to decide which card to pay off first, you might want to consider the one with the smallest credit limit since going over the limit can involve fees and can damage your credit.
5. Set up an Emergency Fund
It’s probably smart to use this time in young adulthood to set up an emergency fund of a minimum of $500 for any expenses that come up unexpectedly. This could be anything from dental work to automobile repairs. The general idea is to have a minimum of six months of salary saved in a bank account in case you lose your job, but obviously the timeline is flexible for those in their 20s who are typically not able to build a cushion immediately.
6. Make Sure You’re Insured
Finally, be sure you have adequate insurance, including health insurance, insurance for your dwelling, and possibly life and disability insurance. It only takes one accident or unexpected illness to ruin your entire plan if you’re uninsured.
Following these crucial steps should ensure that your financial accounts are in order and will set you up for a successful future.