Leaving the family home and venturing out on your own for the first time is both exciting and terrifying. You have the freedom to live by your rules, but you also have a wealth of new responsibilities. It’s all too easy to damage your credit score or rack up debt — mistakes that can take decades to remedy. Here are a few ways to protect your financial health.
Create a Budget
Developing a budget is a fundamental part of managing money. According to Investopedia, a good budget will help you meet your financial goals, avoid unnecessary spending, and prepare yourself for emergencies. Once you’ve drawn up a budget, monitor your spending over time to see where your money is going and ensure that your expenses don’t exceed your income.
If your budget is tight, consider making a few cuts. Seemingly small expenses can add up to a significant amount over a year. For example, daily coffee will cost you about $2,008 per year! Budgeting will allow you to review just how much these common expenses are costing you over time so you can cut out anything that isn’t worth it.
For example, you may decide to cut your cable cord and use an internet streaming service instead. Streaming services tend to be more affordable than traditional cable. Plus, you can bring your shows with you on the go! Many services come with mobile apps so you can enjoy your favorite shows on your commute. If you have WiFi and a compatible TV, consider replacing your cable box with a streaming device that will still give you access to channels and apps but allow you to trim some of the fat from your budget. Note that players have different features, so be sure to compare models so you get the best bang for your buck.
Don’t Buy Anything You Can’t Afford
Credit cards make it all too easy to spend money we don’t have and let our budgets get out of control. While you can hide them or freeze them, credit cards can help you save money when used wisely. If you use a credit card, don’t buy anything that you can’t afford at the time of purchase. Pay off your card as soon as you get home from shopping. Alternatively, you may decide to switch to cash-only or use prepaid cards. Debt Free Forties also recommends cutting your spending by unsubscribing from store email lists, staying away from your favorite stores, and sticking to a shopping list when you go out.
Build an Emergency Savings
Building up emergency savings is another way to avoid debt. If a large, unexpected expense comes up, a savings buffer will prevent you from maxing out your credit cards or taking out a loan. For now, aim to build up emergency savings that can cover at least three months of your living expenses. Put these funds in a high-interest savings account that you can access whenever you need it. Just avoid spending this money on non-emergencies like vacations or normal car maintenance — these are expenses that you should budget and save for separately.
Protect Your Hard-Earned Money
Finally, take steps to protect the money you’ve worked so hard to save. Different types of insurance can help with this. Health insurance can protect you from high medical bills and ensure you get the care you need in the event of an accident or illness. Disability insurance will protect your ability to earn an income if you get sick or hurt. Renter’s insurance can prevent you from having to buy new stuff if your belongings are stolen or damaged.
Also, do what you can to protect your savings from taxes and inflation. Reduce your taxes as much as possible by contributing to a retirement savings account and learn about any tax credits you may be eligible for. To protect your money from inflation, keep it in a high-interest savings account and start looking into your investment options.
Managing your finances is just one of the responsibilities you acquire as you venture out on your own. While your freedom may be hard to rein in, poor financial decisions today can cost you for the rest of your life. By taking care of your finances now, you’re investing in your future.
About Christopher Haymon, Adulting Digest
After five years, Christopher Haymon is almost debt-free. Leaving college and entering the “real world,” he learned a valuable lesson about the perils of not budgeting or saving. Now that he's on the right track, Christopher writes about finances in his spare time in an effort to help others.
Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary & require consideration of your unique objectives & financial situation. Please consult with your accountant or tax advisor for specific guidance.