A diploma and a first job kick off your financial adult life. When the “I have no idea what I’m doing” freakout hits, these eight money moves will help you start strong.
Whether you’re graduating from high school or college, a diploma and a job represent the beginning of your personal — and financial — adult life. It’s an exciting, sometimes overwhelming time.
When you have the inevitable “I have no idea what I’m doing” freakout, remember these tips:
1 Set Clear Financial Priorities
You probably can’t save, invest and pay off debt all at once, so prioritize in this order:
Save $500 for emergencies, because there will be emergencies
If your employer offers a 401(k), contribute at least enough to get any “employer match” — it’s free money
Pay down high-interest debt, like credit cards
2 Learn a Simple Budgeting Strategy
Identify your after-tax income on your pay stub, then use the 50/30/20 rule as a budgeting guideline:
Use 50% for necessities like rent, groceries, transportation, utilities and minimum loan payments
Put 20% toward savings and debt repayment
Spend 30% on nice-to-haves like restaurants, travel and entertainment
If 50% isn’t enough to cover living expenses, dip into your nice-to-haves bucket.
3 Learn How Credit Works and Why It Matters
Credit is adulthood’s currency. You need good credit to qualify for travel rewards credit cards, get the best rates on loans and insurance and eventually buy a house. To have a good credit score, you generally must:
Use credit by taking out loans and opening credit cards. You don’t need to carry a balance on them, though
Consistently make payments on time
Use less than about 30% of your available credit. If you have a card with a $3,000 limit, for example, charge no more than $1,000
Check your credit score to see where you stand. If you have bad credit or no credit, consider getting a secured credit card or credit-builder loan to boost it.
4 Do Some Money Multitasking
In fact, credit-builder loans can help establish credit and save money at the same time.
You can get credit-builder loans through some credit unions, community banks or the online lender Self Lender. Borrow a small amount — say, $1,000 — and repay in installments over a year or two. The lender holds the cash until the loan is repaid. Then you’ll get the money, minus some interest.
Assuming you make full, on-time payments, you’ll get some positive credit history under your belt — and have cash on hand for that emergency fund or retirement account.
5 Leverage Your Youth to Build Wealth
Speaking of retirement, saving for it is one of the best uses of your cash now. Compound interest over decades is like magic: A small amount invested today will be worth more than a larger sum you invest 10 years from now. For example, every $1,000 you invest at age 22 becomes nearly $20,000 at age 72, assuming a 6% rate of return, according to NerdWallet’s compound interest calculator. If you put off starting by a decade, you’d have to save almost double to have the same amount by age 72.
6 Start Saving for Retirement
We didn’t use age 72 by accident — that’s the age at which the class of 2018 can expect to retire, assuming they contribute 6% of their incomes to a 401(k) and have a 50% employer match, according to a 2018 NerdWallet analysis. If your employer offers a 401(k) with a match, sign up and contribute at least enough to get the match. Increase your contributions annually or whenever you get a raise.
If you don’t have an employer-sponsored retirement account, open a Roth IRA through a brokerage or robo-advisor and contribute up to $5,500 yearly. The account’s earnings will be tax-free.
7 Make a Plan for Your Student Loans
Student loan payments typically come due six months after you leave school, giving you time to get a job before payments begin. But interest accrues during this grace period — except on federal subsidized loans — so begin making minimum payments sooner if possible. Once you have very good credit and a job with a steady income, consider refinancing your student loans to save money by lowering your interest rate. If payments on your federal student loans are overwhelming, review your options carefully. Income-driven repayment and Public Service Loan Forgiveness may offer relief, but both require meticulous attention to detail and annual maintenance to pay off.
8 Research Your Job’s Market Value
Advocating for yourself can be a particularly challenging part of adulthood. As your career progresses, you’ll feel empowered to negotiate your salary if you back your ask with hard numbers. Research the going rates for similar roles in your field, at your skill level. Then, reference your findings during the negotiation conversation. Even if the employer declines, they’ll likely respect your preparedness and confidence.
The article How to Manage Money in Your 20s originally appeared on NerdWallet.
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Frequently Asked Questions
What should I prioritize first when I start earning?
Tackle three things in order: first, save $500 for emergencies, because there will be emergencies. Second, if your employer offers a 401(k), contribute at least enough to get any employer match, since it’s free money. Third, pay down high-interest debt like credit cards. You probably can’t save, invest and pay off debt all at once, so following this order keeps you focused on what matters most as you start out.
How does the 50/30/20 budgeting rule work?
Start by identifying your after-tax income on your pay stub, then split it three ways. Use 50% for necessities like rent, groceries, transportation, utilities and minimum loan payments. Put 20% toward savings and debt repayment. Spend the remaining 30% on nice-to-haves like restaurants, travel and entertainment. If 50% isn’t enough to cover your living expenses, dip into your nice-to-haves bucket to make up the difference.
How do I build a good credit score?
To have a good credit score, you generally must use credit by taking out loans and opening credit cards, though you don’t need to carry a balance. Consistently make your payments on time, and use less than about 30% of your available credit. With a $3,000 limit, for example, charge no more than $1,000. If you have bad or no credit, consider a secured credit card or credit-builder loan to boost it.
Why should I start saving for retirement so young?
Compound interest over decades is like magic, so saving early is one of the best uses of your cash. Every $1,000 you invest at age 22 becomes nearly $20,000 at age 72, assuming a 6% rate of return. If you put off starting by a decade, you’d have to save almost double to reach the same amount. If your employer offers a 401(k) match, sign up; otherwise open a Roth IRA.
When do student loan payments begin, and can I lower them?
Student loan payments typically come due six months after you leave school, giving you time to find a job first. But interest accrues during this grace period, except on federal subsidized loans, so begin making minimum payments sooner if possible. Once you have very good credit and a steady income, consider refinancing to lower your interest rate. If federal payments feel overwhelming, look into income-driven repayment and Public Service Loan Forgiveness.
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A diploma and a first job kick off your financial adult life.
Whether you’re graduating from high school or college, a diploma and a job represent the beginning of your personal — and financial — adult life.
When you have the inevitable “I have no idea what I’m doing” freakout, remember these tips.
You probably can’t save, invest and pay off debt all at once, so prioritize in this order.
Identify your after-tax income on your pay stub, then use the 50/30/20 rule as a budgeting guideline.
If 50% isn’t enough to cover living expenses, dip into your nice-to-haves bucket.
Credit is adulthood’s currency.
Check your credit score to see where you stand.
In fact, credit-builder loans can help establish credit and save money at the same time.
You can get credit-builder loans through some credit unions, community banks or the online lender Self Lender.
Assuming you make full, on-time payments, you’ll get some positive credit history under your belt — and have cash on hand for that emergency fund or retirement account.
Speaking of retirement, saving for it is one of the best uses of your cash now.
We didn’t use age 72 by accident —.
If you don’t have an employer-sponsored retirement account, open a Roth IRA through a brokerage or robo-advisor and contribute up to $5,500 yearly.
Student loan payments typically come due six months after you leave school, giving you time to get a job before payments begin.
Advocating for yourself can be a particularly challenging part of adulthood.
Teddy Nykiel is a writer at NerdWallet.
The article How to Manage Money in Your 20s originally appeared on NerdWallet .
Tackle three things in order: first, save $500 for emergencies, because there will be emergencies.
Start by identifying your after-tax income on your pay stub, then split it three ways.
To have a good credit score, you generally must use credit by taking out loans and opening credit cards, though you don’t need to carry a balance.
Compound interest over decades is like magic, so saving early is one of the best uses of your cash.
Student loan payments typically come due six months after you leave school, giving you time to find a job first.
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