Adulthood offers up plenty of challenges. But perhaps the most significant is navigating finances without digging yourself a deeper hole. Venturing out on your own isn’t easy, but it’s a necessary step—and so is learning to live frugally. Here’s how to protect yourself and your wallet as you head out on your own.
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Parents often peg teens as being irresponsible. And while that isn’t necessarily so, the truth is that young adults need to learn to care for their belongings sooner rather than later. One way to avoid unnecessary expenses when you’re finally on your own is by caring for your stuff and keeping it in good repair.
After all, an expense like buying a new car could prove impossible, especially if you have low credit or low income. Worse, poor credit can also mean exorbitant rates on auto financing if you must purchase a car to get to work or school.
However, taking steps to maintain your car can help it last longer and perform better, saving you cash and time. Look for deals on maintenance, auto parts, and products for your vehicle. By shopping around, you can even snag discounts and cash-back offers to really stretch your dollars.
The number one financial rule for people of any age is to spend within your means. That means establishing a smart budget—and sticking to it. Experts often suggest the 50/30/20 rule, which designates half of your post-tax income to necessities, 30 percent to “wants,” and 20 percent to savings. While it may not be feasible to follow this exact formula, you shouldn’t be running up a credit card balance faster than you can pay it down.
Unfortunately, most young adults say their debt is mostly due to credit cards—not student loans—notes Business Insider. Avoid becoming a statistic and don’t take out any credit cards unless you’re using them to build credit.
Credit cards can be an effective way to build credit if your score is low, says NerdWallet. Building credit with a card involves using less than 30 percent of the available credit and paying it off each month. Paying twice per month can also help keep your reported credit favorable since that means the credit bureaus won’t see a high monthly balance.
As you make purchases and are working at building credit, be alert to scams. Shopping sites that aren’t secure and deals that sound too good to be true should be avoided at all costs, and if you’re a victim of a scam, notify your lender immediately.
Using a credit card—wisely—can also help if you’re struggling to pay for basic expenses due to an unpredictable income. Of course, if you’re not making enough to pay your balance each month, a side hustle like selling gently used items online or driving for Uber or Lyft could help you earn a bit of extra cash.
No matter your age or income, planning for the unexpected is always a smart idea. Therefore, prioritizing your savings account will prove beneficial in the long run. Whether it’s cash to repair your car or the expense of buying a new laptop, a buffer in your bank account can make a difference. Capital One recommends having about 25 percent of your gross pay in a savings account by your mid-20s.
Your savings is also critical to homeownership. Many young people are on the cusp of making this major investment. You might have heard you can purchase a home with no money down. There are loan programs through the FHA, VA and USDA that can help you sidestep the traditional 20 percent down payment. However, bear in mind that homeownership is a costly undertaking, and you will spend hundreds of dollars every month just keeping your property. A solid savings plan will ensure you’re prepared when your air conditioning gives out, the washer springs a leak or your pipes burst.
Keeping credit balances low, savings high, and protecting all your investments might be challenging, but it’s a worthwhile endeavor. Living frugally now can have a significant payoff later, helping you live well as you mature. Your solid financial strategies will pay off in the long run, literally!
April 30, 2021