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Financial Planning Insights

How to Make Sense of Your Finances as a Young Adult

By The Chandler & Knowles Team | | 0

Confused by finances? Unsure about insurance? You’re not alone, especially if you’re breaking out for the first time on your own! After all, if finances weren’t so complex, there would be no need for financial experts and economists. Thankfully, you don’t need a degree in finance to protect your wallet and make smarter choices with your money. You just need to understand some basics, and the tips below can definitely help.

 

Consider Life Insurance Needs and Options

Life insurance can be the ultimate gift to yourself and your loved ones. While it’s not fun to think about the end of life, especially when you’re so young, it’s important to keep in mind that tragedies do happen, and they usually happen without warning. So depending on your situation, 20-year term life insurance can be a wise investment. Having that added financial cushion is ideal for adults who have children, a 20-year mortgage or even a tight budget. There are other life insurance coverages as well, so find a plan that fits your current stage of life.

 

Get Covered by Complete Health Insurance

If you get sick, can you afford to see a doctor? What if you need to visit the emergency room or take medications regularly? These are all serious questions you need to ask yourself when figuring out which health insurance plan is right for you. If you are currently employed, getting covered through your employer is likely to be the most economical choice. Otherwise, you will need to look into other health insurance options, so you can avoid paying out of pocket.

 

Research Insurance for Applicable Property

Depending on your chosen home and transportation modes, you may need various types of property insurance. For example, renters insurance will cover most of the contents of your home if you are leasing and is far less expensive than replacing those items on your own. If you buy a home, you will definitely need homeowners insurance. Also, most forms of transportation, such as motorcycles and automobiles, require insurance, but those requirements vary by state.

 

Understand Credit Scores and Reports

You’ve likely heard ads about checking your “free credit score.” But what is a credit score and how does it differ from your overall credit report? That’s a complex topic, but you can search for online credit guides to provide a more detailed breakdown of the differences. Essentially, your credit score is a rating calculated from your overall credit history and is used in most credit decisions, while your report contains the details of that history and can be used by lenders, leasing companies, insurance companies and even some employers.

 

Be Savvy About Credit Card Usage

When young people think of credit, they usually think of credit cards. While there are many factors that impact credit, credit card usage tends to be the first and often a source of confusion for both new and seasoned cardholders alike. For example, most people think that simply paying off balances completely is the best way to use credit cards to build their scores, but those with the highest scores use credit more strategically. Make sure you have a handle on responsible credit card usage now, so that you can have credit that can help later in life.

 

Find Simple and Painless Ways to Save

Saving for the future is important, but that doesn’t mean you can’t budget for fun as well. In fact, setting realistic savings goals is the most effective way to stick to a budget and set yourself up for financial stability. So consider using budgeting apps to reach your savings goals, but also set up a disposable income category, if possible. You can use these funds for travel, treats and entertainment to reward yourself for all of that fiscal responsibility!

Eventually, you may be interested in purchasing a home. In order to buy a home, you’ll have to make a down payment which won’t be calculated as part of your loan amount. The higher the down payment, the less you’ll have to spend on monthly mortgage payments. If you’re purchasing your first home, consider taking out an FHA loan from PennyMac loan services. FHA loans are often ideal for younger homeowners because they have flexible credit and income qualifications, and you can often purchase a home with a much lower down payment.

Taking care of your finances and managing your wallet doesn’t have to be complicated. As long as you have some basic concepts down and do some basic planning, you should be able to set yourself up for a bright financial future. Keep this guide handy as you set out on your own.

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Chandler & Knowles CPAs is dedicated to serving our clients with an integrated approach to financial success for businesses, families and individuals. Our knowledgable team is committed to providing you with the most detailed information to answer your biggest financial questions and to help make your life less taxing.

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