Financial Tips for Young Adults (Part 2 of 2)
Start Saving for Retirement Right Away
In Part 1, I mentioned the idea of compound interest, sharing that the sooner you start saving for retirement, the less principal you'll have to invest in the long run. Although retirement seems a long ways away, it's important to start preparing right away. By doing so, you'll be able to retire when you want and wont have to worry about working later on in life out of necessity.
Not sure where to start? Check to see if your company has a sponsored plan for its employees. This gives you pre-tax dollars with contribution limits much higher than an individual retirement plan. If they offer a match of part of your personal contribution, make sure you're taking advantage of this "free money."
Understanding Income Taxes
Before getting your first paycheck and wondering why it's so much less than you anticipated, it's important to understand how income tax, as well as local state and federal taxes work. You'll need to calculate how much your gross salary will need to be in order for you to make enough to cover your current expenses and financial goals. There are online calculators you can use to determine how much will be deducted so you will know how much your take-home pay will be.
Have a job offer on the table? Knowing what you need to make each month will help you know if the offer lines up with your needs. This will also help you understand how much a raise in income will affect your bottom line.
Protect Your Health
Don't forego getting health insurance. Accidents and illnesses aren't planned, but if you're unprepared, it can cost you more than you think. the monthly insurance premium may seem impossible, but it's not worth taking the risk of not being insured. Get quotes from different insurance providers and/or brokers to find the best rates. The best insurance against illness is taking good care of yourself and living a healthy lifestyle. Again, these are good habits to get into and will save you more than you know as you age.
Protect Your Wealth
You work hard for your money, and you need to take the appropriate steps to protect it. If you rent, having renter's insurance to protect the contents of your home from burglary, fire, or flooding. Depending on the state you live in, you may also need to get your own Disability Insurance. This will provide you with a steady income if you ever become unable to work for an extended period of time due to injury or illness.
In some states, there are deductions from your paycheck with disability insurance. Investing your money properly is another area where you have to be careful. Try to find a fee-only financial planner who will provide unbiased advice that's in your best interest. Avoid a commission-based financial advisor who earns money when you sign up for their company's products.
To sum everything up, you can become an expert at managing your finances. If you take charge of your finances in the early stages by getting the education you need, you can control your prosperity and destiny.