You’re legally an adult when you turn 18, but that doesn’t mean you’re ready to live your life. Especially when it comes to managing your personal finances as a “grown-up” (no matter how grown-up you are already).
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There is a long list of basics required to be financially secure. They’re not new concepts, they’re not complicated, but many of us don’t seem to understand the true importance of these: they are the concepts we need when we jump out of our nests and take control of our own lives. Create a safety net for him.
Adulting 101: 9 Steps to Personal Finance for Adults
These nine key financial concepts give you the tools you need to live as a financially healthy adult.
1. I need a budget
a budget An estimate of income and expenses for a specified future period, usually adjusted periodically. Essentially, budgeting is creating a plan for using the money you earn to pay bills, spend, and save.
Budgets can be created for individuals, groups, businesses, governments, or anything else that earns and spends money.
How you manage your budget is a personal decision, but you should find a way to easily enter transactions and check in often.
Controlling your monthly expenses can prepare you for life’s unpredictable events and help you better manage your finances.
Budgeting doesn’t have to be boring. You don’t even have to be good at math. It also doesn’t mean you can’t buy what you want. It simply means knowing where the money is coming from and, more importantly, where it is going.
2. Checking and Savings Accounts
Bank accounts An easy way to access your money safely. In the 21st century he doesn’t need to go to the bank and can do all his business online or with his ATM/debit card if he wants.
Getting a “free” account is also relatively easy, so you can avoid being bothered by monthly bank fees.
3. Set up an emergency fund
An emergency fund is money that you set aside just in case (yes, you need to keep it in your own savings account so that you can use it in times of financial difficulty). there is). Its purpose is to prepare for unexpected expenses such as illness, unemployment, or major home renovations.
It is usually quantified as how many months of expenses are covered.Typical advice is 3 to 6 months worth of expensesStill, during times of economic stress such as pandemics and recessions, it may be wise to have more.
You’ll want to keep your emergency funds fairly liquid so that you can avoid borrowing and high-interest debt options such as credit cards and unsecured loans.
4. Save for retirement
If you’re just starting your career, you probably haven’t given it much thought. retirementBut even with decades ahead, it’s never too early to start saving and planning.
The best rule of thumb is to start saving for retirement as soon as you get your first job! Check to see if your employer offers a 401(k) retirement savings plan, and if they do. Sign up for it and start donating.If not, you can always save it yourself IRAs.
Time is your best friend when saving for retirement. The money you deduct from your paycheck grows over the decades and benefits from interest earned on interest. This is called compound interest, and those who take advantage of it early usually retire very comfortably.
5. Get insurance
Accidents and disasters do happen. If you lack the cash to handle them, you could face substantial financial setbacks as a result. It’s how you keep a roof over your head when. Simply put, it’s a protection plan for you and your finances.
There are many different types of insurance, and it is unlikely that you will need all of them the first time you go out alone. However, if you have loved ones or assets worth protecting, you probably want at least some kind of coverage.
When choosing an insurance plan, consider how much value you need to cover. You also need to know how much you can afford to pay each month.
For many types of insurance, such as auto insurance, choosing a deductible is another factor in choosing a plan. The higher the deductible, the lower the monthly premium. However, it also means that your out-of-pocket costs per claim will increase until the deductible is met.
6. Manage your credit
good credit score It’s not just about getting credit cards and loans. Your credit score shows your history of paying off debts to organizations that lend you money.
Three credit bureaus monitor and evaluate your credit. They are TransUnion, Equifax, and Experian. If you force yourself to not pay your debts, your credit rating can be ruined.
In addition, the general cost of living puts a strain on people’s salaries. Businesses have good reason to claim that you have sufficient credit before offering any goods or services on credit. Check if the asset can be trusted. If you have a history of being financially irresponsible, you may have trouble finding a job.
By law, you are entitled to a free credit check once a year from each of the major credit bureaus. These reports can be requested at the following URLs: AnnualCreditReport.comThere are also several credit monitoring apps and services, some of which are free and allow you to track your credit throughout the year.
It’s easier to start with responsible behavior and good credit than fixing and improving your credit score after something goes wrong. If you’re already in high-interest debt, it’s a good idea to have a plan. pay off as soon as.
7. Start investing
To build your wealth, you will want to invest your moneyInvesting allows you to use your money to earn more with a high rate of return.
Not everyone invests. May not have “extra money” Go beyond your regular bills and daily living expenses to stay comfortable. But if you have the money but don’t invest, you’re missing out on an opportunity to increase your monetary value.
Investing is one of the best ways to build wealth over time, but it can be risky and you can always lose money on your investments.
8. Submit your tax returns
If you make money, whether it’s for an employer or self-employed, you have to pay taxes…it’s the law. If you are self-employed, you will need to submit quarterly payments, but this is only an estimate of how much you can borrow.
The idea is to pay “your fair share” and nothing more. That means trying to calculate exactly what you owe and not expecting big refund Because an overpayment occurred at the end of the fiscal year. Mastering this skill will allow you to keep more money throughout the year instead of lending it interest free to the government.
Filing a tax return can seem daunting, but there are many affordable apps and software programs that can guide you through the process and help you file it electronically. Also, if your taxes are particularly complicated, you can always hire an accountant.
9. Plan your estate
Growing up also means thinking about the future in ways that aren’t always pleasant. Death or serious injury or illness planning, or estate planning, is a way to make sure your business is on track if something happens.
A living will is a formal, legal document that ensures that you can communicate your specific wishes about the type of medical care you want, in case you are unable to do so. It is a document by Living wills are also used to spell out end-of-life care wishes, such as wishes for pain management, organ donation, and more.
A power of attorney (POA) is a legal document that authorizes a designated person to act on your behalf if you are unable to act on your own. The powers granted by a POA can be either limited or extensive in nature. Her designated POA may be responsible for making medical, financial, business-related, or property decisions on your behalf.
A compound advance directive (or health care directive) is basically a hybrid of a living will and a permanent health care power of attorney. Together, they will ensure that your wishes are documented and that you have named advocates to make decisions for you. We want to cover.
Finally, if you have assets to pass to a loved one when you die (or need to appoint a guardian for your minor children), you will need a will. A will documents your final wishes.
These legal documents can be prepared by lawyers or you can create them yourself using DIY software/websites. To ensure they are legal, you must follow state laws, including having witnesses and notarization.
final thoughts
Life is beautiful; unfortunately, not every day is roses and sunshine. Growing up means knowing how to prepare for tough days.
I still have family and friends to give me advice, but ultimately I have to make adult decisions. Read, talk, ask for help, and use the internet to answer your questions.
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