The day’s finally arrived — you’re out on your own. But do you know where to begin when it comes to paying for your new solo life? Before your world gets rocked with the financial realities of starting out, review these 16 tips. Prepare now, and you’ll save yourself the economic stress often associated with living life as a young adult.
1. Set Up Your Own Bank Account
Even if you’re still waiting for your official job offer, it’s time to set up your own bank account. Whether this is your first or you’re transitioning from a joint account, it’s time to be on your own.
Open a checking and savings account so you can segment your money. Request a debit card so you can make cashless payments online and in person. When you start working, be sure to set up direct deposit to get your paycheck as soon as possible.
2. Find a Budget Style You Like and Stick to It
Budgeting can feel like a burden. But it’s better to tell your money what to do than wonder what happened to it. Consider a budgeting approach like zero-balance budgeting, where every dollar is assigned a purpose across all spending and saving categories.
If you’d prefer something less detailed, consider the 50/30/20 method. Here, you assign 50% of your take-home pay to essentials, 30% to fun, and 20% to longer-term financial goals.
3. Avoid Financial Emergencies by Saving Now
You know that burning sensation in your heart, followed by waves of nausea. No, it’s not heartburn. It’s the realization that you’ve got an unexpected expense you can’t cover.
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Avoid this awful feeling, and the risk of taking on unnecessary debt, by saving for emergencies now. Think about your high-risk situations, like your old car conking out. Save a little each month until you’ve got enough saved to cover you for the day it finally breaks down.
4. Understand Investing Basics
One day, you’re debating your school’s new mascot with friends, the next, you’re being asked to fill out W-4 forms. Life comes at you fast, and the same goes with your exposure to and need to understand investing basics.
If you ever hope to retire someday, you’ve got to learn about investing. Review your employer’s retirement education materials and learn the difference between target-date funds and pre- and post-tax savings. If you need help, reach out to a trusted financial advisor.
5. Come to Grips With Your Debt Obligations and Create a Plan of Attack
Do you have a mountain of student loan debt or the remnants of a car loan hanging over your head? No matter your debt source, make a plan to pay it off before you get inundated with interest charges.
Start by writing out what you owe to whom, the interest rates, and the minimum monthly payments. From there, determine how much extra money from your budget you can apply to your debt. Once one is paid off, redirect the recouped payment amount toward the next one to accelerate your debt freedom.
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6. Know Your Credit Score and How to Improve It
Your credit score is the financial version of a Yelp rating. The higher the score, the better you look to potential lenders. Your score is also an indicator that’s often used in job screenings to assess trustworthiness with financial information.
Payment history, credit mix, credit length, credit utilization, and new credit applications are all used to calculate your score. Keep all of those factors in the good or better range, and your score will be brag-worthy.
7. Budget for Fun
What’s life without a little fun? If you don’t plan for it, you stand to build a life of either resentment or a high debt load.
Prioritize spending time and money on the things you enjoy. If buying a new book a week is your thing, include it in your budget. For higher-dollar hobbies, set savings goals to store up cash before you spend.
8. Get the Most Out of Your Employee Benefits Package
Your total compensation package is more than just your paycheck. Take time to review all of the benefits offered by your employer. Many offer health savings account contributions, reimbursement for education, and low-cost life insurance.
Opt in to the offerings that make sense for your life, especially if you have dependents and debt obligations. Use resources like counseling, health coaching, and wellness initiatives to care for your mental and physical health.
9. Save Something — Anything — for Retirement
Time is money. That’s especially true when it comes to saving for retirement, thanks to the magic of compound interest.
Even if you’re working with a small paycheck, start saving at least 1% for retirement. Typically, this 1% contribution is taken pre-tax, so you’ll barely notice it’s missing. Increase your contributions regularly until you reach the maximum of your employer’s match. Once you’ve reached that milestone, consider whether post-tax savings through a Roth IRA should be part of your plan.
10. Understand the True Cost of Convenience
It’s so easy to just order delivery for dinner, especially during a time of social distancing. Before you click “place order,” review the fees associated with door-to-door delivery. Save money when you can by picking up your own order (or cooking for yourself).
If you find that delivery is a convenience that is essential for you, consider sticking to one service. Often, joining a delivery membership will save you money in the long run.
11. Be Strategic With Your Online Shopping
We’ve gotten spoiled with the ease of adding whatever we want to our cart. Suddenly, it’s on our doorstep in a couple of days — and our bank account knows it. This supremely simple buying process can get out of hand when we get trigger-happy ordering online.
Before you click, pause and consider whether what you’re about to buy is essential. If it’s not, make sure you have the budget to support it.
12. Be Open to a Smaller Apartment or Living with Roommates
It can be tempting to get an apartment with plenty of space after years of living in cramped quarters. But think twice before you splash out. You won’t enjoy being “apartment rich, cash poor.”
Before you sign your lease, consider whether adding a roommate would work for your lifestyle and budget. With a roommate, you can cut your living expenses in half and divert the saved amount to your savings account or debt payoff. If sharing space sounds awful, check out smaller units that could save you hundreds each month.
13. Resist Upgrading Your Life When Your Income Increases
A pay increase often incites the desire to make a long-awaited financial move. Before you replace your old beater or buy a new gaming console, think strategically. If you’re lucky enough to drive a paid-off car, consider the long-term impact of trading up on your financial goals.
Instead, set aside half of your increased income for anticipated large purchases. Use the other half to pay down debt, save for retirement, or add some much-needed cushion to your budget.
14. Consider Gig Work to Boost Your Savings or Debt Repayment Plan
Getting a flexible second job is easy thanks to recent advances in tech and our obsession with convenience. Delivery services like DoorDash, Shipt, and Instacart allow workers to opt in to shifts when they’re available.
If you’re often free during the dinner rush, consider delivering food for hungry customers. You’ll pick up some extra cash to make progress toward your financial goals. As a gig worker, you won’t over-commit yourself as you might with an in-person job. You’ll still be left with plenty of time for fun.
15. Talk About Money With Your Friends
For far too long, talking about finances has been taboo, even among close friends. Break the cycle by creating a culture of openness about income, debt, and budgets.
Being transparent about your financial situation allows you and your friends to be clear about what social activities you can manage. Talking about money can also spark productive conversations about pay that may encourage positive financial moves. When you’re comfortable talking about money, you can learn more and inspire financial confidence in others.
16. Know Your Value, and Always Be Prepared to Ask for a Raise
While some organizations have moved to a pay transparency model, many still guard their pay scales closely. Keep tabs on the average pay for your position by researching sites like Glassdoor. If you learn of a gap between your pay and similar roles, have a conversation with your supervisor.
During your annual review, be sure to identify your unique contributions, money you’ve saved the company, and other achievements. If your performance merits more than a cost-of-living increase, make your pitch for a raise.
Make Your Money Moves
Growing up and moving out on your own can be exciting — and overwhelming. Depending on your upbringing, you may not have gotten a complete financial education. A great first step to starting out well is educating yourself. Read, reach out to your employer’s benefits department for resources, and ask questions. With these tips and your quest for more knowledge, you’ll build a solid financial future.
