Whether you are still in school, recently graduated, or just launched your professional career, it’s important to start practicing smart financial habits while you are young. By controlling your spending, avoiding unnecessary debt, and saving what you can, you’ll put yourself in the position to have a very prosperous future. And when you need help on everything from budgeting to tax planning, reach out to HD Tax Preparation & Small Business Services.
Make sound decisions about large purchases
Before buying anything, ask yourself if you really need the item and factor in all the costs associated with making the purchase. For example, when buying a car, your car payment is only a small part of the equation; there are a host of other driving-related costs, including maintenance, gasoline, and insurance. Also, consider that when you are under 30, you typically pay more for car insurance than drivers ages 30-69 because younger drivers are generally considered higher risk by insurance companies.
Where you live also impacts your auto insurance rates. But don't fret, you can still find discounts by bundling your auto insurance with other policies. You may also qualify for a low-mileage discount, safe driver discount, or other reductions.
Track your expenses
At the end of the month, many people find themselves wondering where all their money went. To get a handle on your finances, track every single expenditure you make by using a free money-management program like Mint, a spreadsheet program, or a paper ledger. This will allow you to see in what areas you may be overspending and where you may be able to cut back.
Use your credit wisely
The New York Federal Reserve announced recently that U.S. household total debt (including credit cards, mortgages, auto loans, and student debt) stood at $14.64 trillion by the first quarter of 2021. When you are young, it may make sense for you to rent a home rather than buying while you work on paying off student loan debt.
You also need to be very careful about accumulating credit card debt. Though all those offers you receive in the mail are tempting, you should limit yourself to one or two cards. Look for credit cards that offer rewards programs to earn cashback, points, or miles. Try to only charge purchases that you can pay off in their entirety when the bill arrives.
Make saving a priority
Do you have an emergency fund? Many financial experts recommend having at least six months of expenses saved for an emergency, such as job loss. However, according to a survey by Bankrate, only 18 percent of Americans have enough saved to cover six months’ worth of expenses.
If you haven’t started saving, now is the perfect time to start. Even if you start saving or investing $50 per month, it can begin to add up for your future. After your emergency reserve is funded, start contributing to a retirement plan. In many circumstances, you can deposit pre-tax dollars into a retirement account and your employer will sometimes match part of that contribution. Even though retirement might be decades away for you, it’s never too soon to begin putting money away.
Set your financial goals
In addition to creating a detailed monthly budget and tracking all your expenses, you should also set realistic long- and short-term financial goals. Your goal might be to pay off your debt by a certain date, save for a down payment on a house, or put away money to earn a business degree and eventually open your own business. Whatever your goals are, write them down and then develop a plan on how you will meet them.
Managing your personal finances can be a challenge at any age. However, if you evaluate your spending habits, make changes to your budget if necessary, avoid going into debt, and focus on saving, you can put yourself on track to be financially successful for years to come.
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Author: Marissa Perez