With age comes responsibility, so if you’re a young adult in your 20s or 30s, chances are that you’ve been introduced to the realities of adulthood. While you’re excited by all the opportunities life has to offer, you’re also aware of your emerging financial responsibility. In the financial realm, the millenial generation (young adults born between 1981 and 1997) faces a unique set of challenges, including a competitive job market and significant student loan debt that can make it difficult to obtain financial stability.
Poor money management can lead to debt, stress, and dependency on others. Fortunately, good money management skills can make it easier for you to accomplish your personal goals. Become familiar with the basics of planning now, and your future self will thank you for being responsible.
Figure out your financial goals
Setting goals is an important part of life, particularly when it comes to your finances. Over time, your goals will probably change, which will likely require you to make some adjustments. Start by asking yourself the following questions:
- What are my short-term goals (e.g., new car, vacation)?
- What are my intermediate-term goals (e.g., buying a home)?
- What are my long-term goals (e.g., saving for your child’s college education, retirement)?
- How important is it for me to achieve each goal?
- How much will I need to save for each goal?
- Once you have a clear picture of your goals, you can establish a budget that will help you target them.
Build a budget
A budget helps you stay on track with your finances. There are several steps you’ll need to take to establish a budget. Start by identifying your current monthly income and expenses. This is easier than it sounds: Simply add up all of your sources of income. Do the same things with your expenses, making sure to include discretionary expenses (e.g., entertainment, travel, hobbies) as well as fixed expenses (e.g., housing, food, utilities, transportation).
Compare the totals. Are you spending more than you earn? This means you’ll need to make some adjustments to get back on track. Look at your discretionary expenses to identify where you can scale back your spending. It might take some time and self-discipline to get your budget where it needs to be, but you’ll develop healthy financial habits along the way.
On the other hand, you may discover that you have extra money that you can put toward savings. Pay yourself first by adding to your retirement account or emergency fund. Building up your savings using extra income can help ensure that you accomplish your financial goals over the long term.
Establish an emergency fund
It’s an unpleasant thought, but a financial crisis could strike when you least expect it, so you’ll want to be prepared. Protect yourself by setting up a cash reserve so you have funds available in the event you’re confronted with an unexpected expense. Otherwise you may need to use money that you have earmarked for another purpose – such as a down payment on a home – or go into debt.
You may be familiar with advice that you should have three to six months’ worth of living expenses in your cash reserve. In reality, though, the amount you should save depends on your particular circumstances. Consider factors like job security, health, income, and debts owed when deciding how much money should be in your cash reserve.
A good way to accumulate emergency funds is to earmark a percentage of your paycheck each period. When you reach your goal, don’t stop adding money – the more you have saved, the better off you’ll be.
Review your cash reserve either annually or when your financial situation changes. Major milestones like a new baby or homeownership will likely require some adjustments.
Deal with your existing debt
At this stage in your life, you might be dealing with student loan debt and wondering how you can pay it off. Fortunately, there are many repayment plans that make it easier to pay off student loans. Check to see whether you qualify for income-sensitive repayment options or Income-Based Repayment. Even if you’re not eligible, you may be able to refinance or consolidate your loans to make the repayment schedule easier on your budget. Explore all your options to find out what works best for you.
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Crane Investment Services advisors are registered representatives of CUNA Brokerage Services, Inc. Representatives are registered, securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), Member FINRA/SIPC, a registered broker/dealer and investment advisor, which is not an affiliate of the credit union. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Broker Services, Inc., is a registered broker/dealer in all fifty States of the United States of America.
FR-3347895.1-1120-1222
