Guest article by Craig Meadows of Surviving Day One
Is this your first time to really be in charge of your own financial situation — both in the present and in the future? Maybe you just finished college or you are starting your first full-time job. Maybe both! Either way, understanding how to protect your finances as they grow can be really confusing and even intimidating for some people.
If you don’t have much experience with financial planning, don’t worry. It’s never too late (or too early) to get started. Here are a few things you’ll want to wrap your head around to protect your wallet, credit, and savings accounts.
Pay Your Bills on Time
Impact: Credit Score
Building credit is crucial if you want to purchase a car or home, and there are many ways to do that in addition to paying on credit cards. Believe it or not, simply paying your bills on time can have a big impact on your credit score. Now, paying utilities, mobile phone, and internet bills won’t give your score much upward momentum, but if you are late on these payments or have bills sent to collections, that can hit your credit score hard. Managing money on your own can be challenging, and a late payment here or there won’t hurt you too much. However, don’t make it a habit, as it can spiral out of control and really hurt your credit.
Maintaining a good credit score is definitely important if you hope to purchase a home at some point down the road. For example, if you need a conventional mortgage — which is often a good choice for first-time homeowners — you’ll need to have a credit score of at least 620. Of course, the higher the number, the better rates you’ll receive.
Put (at Least) 5 Percent of Your Income into Retirement
You may think that saving for retirement now, while you are in your 20s, is too early. After all, you have student loans to pay off or savings to build. While those might be a bigger priority, putting a little into your 401k now is a really good idea. Why? It helps you get into the habit of prioritizing your financial future. More than half of American households experience some kind of financial shock in their lifetime. So, it’s important that you start saving for retirement now so that if you have to dip into that money for an emergency it’s not going to break the bank. While 10 to 12 percent of your income is a good range for retirement contributions, starting off with 5 to 7 percent in your 20s will give you a nice cushion to build on.
Look Into Term Life Insurance
Many people just starting out question why they need to consider estate planning, but if you die unexpectedly you could put an unnecessary financial burden on your loved ones. Life insurance is important for many people — especially if you are married, have children, or earn the majority of your family’s income — and it’s an easy way to support your loved ones by covering costs if you should die. No one likes to think about their own mortality, especially for people who are young and healthy. However, that’s exactly why you should. Securing your future with low premiums can be a breath of fresh air for both you and your family.
Protect Your Identity Online
Impact: Credit, Savings, and Wallet
With so many payment processing services provided in the cloud, it’s easier than ever to spend and save money responsibly. However, that also means it’s also easier than ever to have your financial information stolen. In 2013, more than 110 million people’s finances were compromised from a data breach at national retailer Target, and the very next year, about 56 million accounts were hacked from Home Depot. Unfortunately, those two data breaches barely scratch the surface. In 2018, more than 500 million people became at risk for identity theft from a data breach at Marriott. These numbers aren’t going to stop or even slow down.
Protecting your online identity now is crucial for protecting you from the next big hack. Never give out your Social Security number online — and always be suspicious of a company that asks for it. Be wary of clicking on hyperlinks in emails — those are known points of entry for hackers. And always make sure that your online bank accounts are FDIC-insured.
Being out on your own for the first time is a really exciting new chapter in your life. There is a lot of new freedom to embrace and explore. Think of financial planning as another way to enjoy that freedom; twenty years from now, you will be grateful you did.