Understanding financial basics is extremely important. This is especially true in your 20s and 30s when you are just starting out. The financial choices you make now will have an impact well into the future. Because of this, it is important you make good choices in the beginning. In this article, we will go over some of the building blocks of financial basics for millennials so you can have a solid foundation as you begin your journey.
Identify Your Financial Goals
Identifying your goals is the first step you need to take. You need to define what they are so that you can plan accordingly on how you want to reach them. You will need to sit down and ask yourself such questions as:
- What are my short-term goals? This could include things like purchasing a new car or taking a vacation.
- What are my intermediate goals? This would be something like saving for a down payment on a house.
- What are my long-term goals? How much do I plan on saving for retirement? Do I plan on paying for college for any children I may have?
Once you know what your goals are, you will need to figure out how much you need to reach them and from there you will need to create a budget.
Create a Budget
A budget is what is going to help you stay on track financially. The first step in creating a budget is to add up your monthly income and expenses. Your expenses include housing, food, utilities, transportation, entertainment, and hobbies. Once you compile your list you will need to analyze it and see where your spending needs to be readjusted. You will also need to set limits on future spending so you can have extra money left over. This surplus should go towards your emergency account and saving to reach your goals.
Set Up and Emergency Account
It is vital that you have an emergency account. This will give you a reserve of money in the case of unexpected expenses or the loss of income. This extra money will prevent you from going into debt in the case of an emergency or using money that you set aside for other purposes. To build this account up, try and dedicate a percentage of each check you receive towards it. Also, it is important to remember the amount you need to keep in the account will have to be adjusted as your circumstances change.
Use Credit Cards with Caution
Using credit cards is necessary to build your credit. Without credit, you would not be able to qualify for things like a new car or a mortgage. But you need to be careful when using them because you can find yourself easily spending more than you can afford. To avoid this, set limits on their usage. This should be an amount that you can pay off each month. This will help you to build your credit responsibly. Additionally, before you sign up for a card make sure you understand the interest rate, any fees associated with the card, as well as any rewards programs.
Deal with Your Existing Debt
The most common type of debt for millennials is student loans. You will want to explore your options with regard to repaying them. You may find that you qualify for a special repayment plan. Or you may find that it is in your best interest to consolidate your loans. It is just important that you do not ignore them and make a proactive plan for paying them off.
Be Careful When Borrowing
Borrowing money can be helpful in allowing you to reach some of your goals. But it is important that you do not over utilize it. Before borrowing money ask yourself:
- Is it necessary for me to borrow money? Or can I wait a little longer and buy the item outright?
- Am I getting the best deal? Have I shopped around for better pricing?
- What will be the total cost of the loan over time?
- Am I in good shape financially? Or do I have other outstanding debts that need to be paid?
Asking yourself these questions and borrowing only when advantageous will help you from racking up more debt than you can afford. This will keep you in a healthy place financially.
Utilize Technology
There are a lot of apps on the market today that can help you with financial basics. These include banking and budgeting apps. Utilize these resources to stay organize and on track to reach your goals.
Meet with a Professional
Besides putting into practice these financial basic tips, it is also important for you to get help from a financial professional. They will be able to create a personalized strategy to help you meet your goals. The sooner you get assistance, the more successful your future will be.
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