When you first get out of college, things can be scary. You need to find a job, a place to live and build a life for yourself from scratch. Most 20-somethings concentrate on the job, the place to live and the job, oftentimes forgetting about the financial part of their lives. It isn’t just about making sure you are paying your bills on time; it’s about starting to build your financial future. Here are five goals that Millennials should focus on when getting their finances in order:
Determine a Budget
This is the biggest mistake that Millennials make. They start their first job and have so much money coming in, they think they can spend and spend and not worry about the price they are paying. The first thing you should do when you get a job is set up a budget for yourself. Make sure you are setting money aside and not living paycheck to paycheck. Keeping track of what you are spending money on can also help you plug up budget leaks that are costing you money. Here are some good tips on how to plug up budget leaks.
Build Your Emergency Fund
Most 20-somethings don’t have any kind of emergency fund in case they have an emergency. If you are hospitalized, even with health insurance, your bill can be more than you can afford to cover. Or you could have to quickly move if your landlord sells your building. There are hundreds of emergency situations that you need to be prepared for, and if you are living paycheck to paycheck, you won’t be able to afford to cover these emergencies. If you set up your emergency fund with an online bank, you can end up earning more interest on your savings, since online savings accounts usually offer higher APYs, since they don’t have physical branches to pay for.
Build Your Credit Score
Your credit score is probably something you don’t really think about until you apply for your first credit card, but it’s something that can determine your financial future. Credit scores are used to determine if you’ll be approved for things like a car loan or a mortgage, or how much you’ll pay in interest or premiums for loans and insurance. Since your credit score is largely based on your credit history, starting to build your credit score early can help you save a ton of money when it’s time to buy a house, a car or insure all of your belongings.
The best way to build credit is to sign up for a credit card or two. Make sure to look for a credit card with some rewards so you are getting cash back for using your card. Here are the best rewards credit cards. Also, make sure you are paying your ENTIRE balance on time each month. This will help you avoid paying interest and fees and also help you build a solid credit score. Don’t know your credit score? Get it free without giving your credit card information here.
Start Your 401k
This is one of the areas that 20-somethings tend to avoid because they figure retirement is so far in the future, there is no point in worrying about it now. Wrong. The earlier you start saving, the easier retirement is going to be. Many people at retirement age now are working well past 65 because they didn’t plan well for retirement. The extra bonus of starting your 401k early is that interest on the account compounds. So if you start it when you are 25, that 40 years of interest that you will accrue, instead of 30 years if you start at 35.
If you are uncomfortable with making any 401k decisions yourself, talk to your HR department to get some insight on how you should invest. You could also set up an IRA. Sites like TD Ameritrade and E*TRADE will give you advice on how to set up your IRA.
Pay Back Student Loans
Not all of them, but make sure you are starting to make payments on your loans. One very tempting option for 20-somethings right out of college is to start and continue to defer student loan payments. The longer your defer, the more interest you are going to accrue, which means you will be paying more for your loans. Get ahead of the game and start making at least the minimum payment on your loans, otherwise you might have a hard time paying them off later.