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5 Things You Need to Prioritize Financially When Leaving Home

Posted in Borrowing Money on May 18, 2020

Venturing out on your own as a young adult can feel equal parts freeing and intimidating. Hopefully, you know the basics of running a household and generally taking care of yourself. But what about finances? Here are five things you need to prioritize when it comes to money.

Plan for the Unexpected

Life doesn’t always go according to plan, no matter how good our intentions. The good news is that protection can come in many forms—like insurance, savings, and more.

Invest in the Right Insurance

Car insurance is a financial priority since many states penalize drivers for not having it. Health insurance is another vital coverage you need because your health is your greatest asset.

But what about life insurance? If you’re married or have children, someone depends on you (and your income) to survive. Whether you’re the family breadwinner or a stay-at-home parent, life insurance can help protect your loved ones if the unexpected happens.

You might be surprised at how affordable life insurance policies can be—especially considering the payoff if anything does happen to you.

Set Aside Savings

Young adults typically have relatively low income, but that doesn’t mean you can’t start saving right away. Setting aside any ‘extra’ each week is a smart step toward bulking up your savings account. Establishing a budget can help you figure out where your money’s going and how much you can divert to a savings account. Consider learning and applying the 50-30-20 rule—with the 20 percent of your income going toward savings.

And don’t feel discouraged—AOL notes that if you’re 20 and have anything saved, that’s better than nothing. But by age 25, you should have about one-fourth of your gross annual pay in savings—about $10,000 if you make $40,000 per year.

Maintain a Healthy Credit Score

Credit impacts a lot in an adult’s life, from being able to buy a car to purchasing a home or even renting an apartment. You should monitor your credit, avoid getting dinged for bad spending habits, and take advantage of free benefits like credit monitoring.

Start Smart with Credit

If your credit history is nonexistent, you’ll want to begin building it now that you’re on your own. But this first step can be challenging since most lenders don’t want to issue credit cards or loans to someone without a credit history.

But in many cases, bills like your cell phone or utilities can count toward your credit score. Companies like Experian, one of the nationwide credit reporting companies, offer special programs to help you build credit. Experian, for example, offers Experian Boost, which allows you to add your cell phone, gas, electricity, and other telecom bills to your credit account. This helps you build credit with on-time payments without applying for credit products.

Care for Your Credit Each Month

Protecting your credit score involves other factors, too. Paying existing payments on time is vital since payment history counts for 35 percent of your credit score. Another negative is opening—or trying to open—too many credit cards in a short period.

Overspending on your credit cards is also a no-no—your credit score is penalized when you max out your cards. In general, a 30 percent credit utilization ratio is the highest you should have, says CNBC, but lower is better. Ideally, you should pay any cards off each month to build up your score and avoid interest fees.

Check in Often

You can check your credit for free once per year with one of three companies, says the Federal Trade Commission: Equifax, Experian, and TransUnion. You can order from each one individually via their websites, or use the centralized website, annualcreditreport.com, to access your free report.

A credit score above 700 is “good,” and checking in with apps like Credit Karma, Mint, or Credit Sesame is free—and a good strategy for staying on top of your credit.

Finances can be complicated, but by starting out right, you can avoid the pitfalls of debt later in life. Navigating financial challenges early on means increased independence throughout your life, and possibly even more wealth. Start now—you’ll thank yourself later!

Blog Contributor: Christopher Haymon of adultingdigest.com

Photo via Pexels

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