Starting a new chapter in your life as an independent adult? One of the most important lessons you can learn is about financial wellness. Give your future self the gift of security by hitting these five financial health goals in your 20’s:
1. Start a Budget
A budget is essential for taking control of your finances. Simply put, a budget is a record of your income and expenses that helps you plan for the future. Not sure how to get started? A SESLOC Money Coach can get you on track.
2. Get in the Habit
A habit of savings is the biggest indicator of financial health, so getting started early is a critical step towards your financial future. While it may seem daunting to find money to put away if you’re working part-time as a student or just launching your career, the important thing is that you put something away every time you get paid.
That’s why SESLOC offers the Save to Win Share Certificate, designed to especially to help you build a habit of savings. All it takes is a $25 minimum deposit to open, it earns dividends, and you can be entered to win a prize drawing of up to $5,000 every time you increase your balance by $25 (up to 10 entries per month).
3. Plan for Emergencies
Life happens, which is why an emergency fund is so important. Make it a goal to save three months’ worth of living expenses that you can only touch when life throws you a curveball. If you need to dip into the fund to fix your car, pay medical bills, travel for a funeral, or cover living expenses after a job loss, make it a priority to replenish the fund when you’re able to.
4. Understand Credit
Your credit score is a number that represents the likelihood you will repay your debts — the higher the score, the better. This is important when you’re planning to take out a loan or open a credit card. Your score will influence the interest rate you qualify for, which translates into the cost of your loan. Qualifying for lower interest rates saves you money and keeps your payments lower. Learn about what’s in your credit score and how to improve it.
Your credit report is your record of credit lines, debts, and payment history. You are entitled to a free copy every year, thanks to the Fair Credit Reporting Act. It’s a good idea to review your report annually to ensure that there are no errors or potentially negative items that you didn’t know about. Check out these tips for how to do that.
So who looks at your credit? It’s not just financial institutions and creditors — landlords and utility providers may want to see that you have a history of making payments on time. If you have no history or a bad history, they may have stipulations for service, like adding a co-signer or paying a large deposit. Some employers also require a credit check for employment.
5. Start Planning for Retirement
You might think retirement planning can take a backseat since it’s a lifetime away. At the moment, you probably have other financial priorities in mind, like paying for school or saving to buy a car.
However, the key to retirement planning is time. Even if you only put a little bit of money away right now, it makes a significant difference down the road. This is because of a little magic called compound interest — where you earn interest on interest. Over time, it really adds up.
A great place to start is by enrolling in your employer’s 401k program, if offered. You’ll allocate a percentage of your paycheck, either pre or post-tax, to be automatically set aside. Many employers offer matching funds, where they’ll contribute to your fund when you do. It’s essentially “free” money. Matching typically has a vesting period, which means the employer’s portion becomes “yours” over a period of time, contingent on your employment.
It’s also a good idea to start an Individual Retirement Account (IRA). SESLOC offers Traditional IRAs and Roth IRAs with low minimum balances and no maintenance fees so there’s no barrier to get started. Simply deposit money into it when you’re able to. The Internal Revenue Service sets a limit on how much you can contribute to your IRA during each tax year, but you can get started with as little as $5.