9 Ways to Set Yourself Up for Financial Success Before Age 25
Giving your finances proper care before age 25 could enable your money to grow beyond your wildest dreams.
The sooner you plant and nurture smart money habits, the better prepared you’ll be to weather financial storms that may arrive later in life. Individuals under age 25 who’ve learned to live within their means are often better equipped to shield themselves from the devastating effects of an income loss or other financial emergency. Plus, weeding out bad decisions makes it possible to grow a flourishing financial garden.
Here are nine seeds of money management you should plant early in life to reap a financial harvest down the road.
1. Establish financial goals.
Create short-term and long-term goals with specific deadlines, then break them down into smaller achievable goals. For example, you might set a short-term target of saving $500 in six months, along with a plan to save 10% for a down payment on a home over five years. Each goal can be further broken down by the amount you need to set aside each month or year.
2. Create and stick to a budget.
Set conditions for your finances to thrive by developing a realistic budget. Not only will it provide an overview of your income and expenses, but a monthly review of your take-home pay and spending habits can also ensure you’re on track to meet your financial goals. Choose a budgeting method that makes it easy to track your progress.
3. Build an emergency fund.
Financial emergencies can happen at any time, so it’s essential to have savings set aside so you aren’t tempted to use a high-interest-rate loan to cover unexpected costs. Aim to save at least three months of living expenses so you have a financial cushion if something should happen.
4. Prioritize debt repayment.
If you have student loan or credit card debt, commit to paying it off as soon as possible. The longer you take to pay off debt, the more you could spend in interest charges. Do your best to make more than the minimum required monthly payment.
Consider working overtime or taking a second job to eliminate debt faster. Once the debt is paid, redirect the old debt payment to your emergency fund to build more security for the future.
5. Automate retirement savings.
Sign up for auto-enrollment in an employer-sponsored retirement plan. This allows money from your paycheck to be automatically deposited into the plan’s account before you have a chance to spend it. Start with a small amount, like 1% of your earnings, and then gradually increase your savings to 15% of your salary as you advance in your career.
6. Open an Individual Retirement Account (IRA).
If your employer doesn’t offer a retirement plan, you can still save for your golden years. IRAs are available through financial institutions like the Credit Union of Colorado. These accounts provide an additional way to save for living expenses after you leave the workforce. The earlier you start saving for retirement, the less you need to save overall.
Use the Future Value Calculator to estimate how much an initial deposit plus regular contributions can add up.
7. Establish and maintain good credit.
Lenders, employers, and even some landlords review the information in your credit report before deciding to do business with you. Services like Experian Boost® let you establish a credit profile without taking on debt. Pay all bills on time and keep credit account balances low to experience the benefits of healthy credit.
8. Get adequate insurance coverage.
Without adequate insurance coverage, you could pay out-of-pocket for an accident, injury, or property damage. Selecting the right policy is about more than knowing the difference between a premium and a deductible. Learn what each policy covers so you’re not met with an unwelcome financial surprise if you need to file an insurance claim.
9. Study up on investing.
Take the time to research different investment options, such as certificates of deposit (CDs), stocks, and bonds. Investing early and often lets you maximize the power of compound interest. Understanding the risks associated with various types of investments could help you select ones that match your comfort level.
Giving your finances proper care before age 25 could enable your money to grow beyond your wildest dreams. Partner with a trusted financial advisor to develop a plan that ensures every dollar you earn works as hard as you do. Schedule a free, no-obligation consultation with an LPL Financial Advisor at the Credit Union of Colorado today!