Financial Adulting 101
Every generation is given a title: the greatest generation for our grandparents, the Baby Boomers; and the slacker generation for the Gen-Xers. Millennials have been given many titles, but the one that strikes me the most is the Boomerang Generation. The generation that finds themselves living back home with their parents all too often. Is it failure to launch syndrome? Do the Millennials refuse to grow up? Is it possible many millennials just aren’t sure how to take that next step? I believe this last question is more likely.
You’ve done all the work, put in the hours to graduate from college with a degree you hope will lead you to the life you have always dreamed of. A nice house, a nice car, vacations, but where do you even begin? All you know is you have thousands of dollars in student loans and you start work at your first real job on Monday. You were taught a lot of skills to help you excel in your new role, but there weren’t any classes about balancing a checkbook or paying back your student loans. What about buying a new car or this thing called a credit score? How did you miss all of these important learning experiences at college?
Don’t worry, its not as scary out there as you might think. Let’s break down a few quick tips.
- Start with the basics:
How much money are you bringing in net of taxes on every paycheck? (Oh yeah, did I forget to mention you get to pay taxes now?) The dollar amount the company is paying you on paper sounds great, but don’t let that figure stick in your mind as the amount you are bringing in and able to spend. That mindset can quickly land you in a situation of trying to figure out why you are living paycheck to paycheck and hoping your parents haven’t turned your room into the home gym. That downtown apartment may be really nice, but lets make sure you can buy groceries too. Track your expenses for two to three months to get an understanding of your normal spending habits. Once you know where you are typically spending most of your money, budgeting gets easier. Compare your monthly paychecks to your monthly expenses, how much is left? Write down some saving targets and set a date to hit them. Just like any project, we need to have an end goal to work towards.
- Know your interest rates:
Look into how much interest you are paying on each loan. Whether it is your student loan or a car loan, its important to know what the company is charging you to have that debt. Which one has the highest rate? Is it possible to consolidate some of the loans at a lower rate? How much of your monthly payment is going towards the principal vs interest? If you are asking yourself, “What’s the principal?,”no, its not the one at your high school, it’s the original value of the loan you took. Knowing these details can help you take a step towards deciding which one to pay down first and move towards getting that weight off your shoulders. Some like to take the snowball approach to paying down debt. By paying off a small loan first and working towards your largest loan, you begin to build momentum and satisfaction each time you pay one off. Another approach is to focus first on the loans with the highest interest rates, they are going to cost you the most in the long run, so attack them first. Also, you may consider consolidating your loans to one payment. Not all loans are eligible for consolidation, check with a professional to see if its possible for you.
- Take advantage of employee benefits:
HR has told you its time to sign up for benefits. First off, what does that even mean? What are benefits? Do they mean trips, ice cream socials, and after work happy hours? Alright! I’m in! Unfortunately its not quite as exciting, but it is much more important. Benefits are things like your medical insurance plan, your 401k option, and employee stock purchase plans. No one has prepared you to chose what will be right for you and there are a lot of choices. Take the time to research each one and take advantage of those that can help you be in a better place down the road, like the 401k. If the company will match some of what you put in, at least contribute that amount, its free money towards your future. Generally speaking, a good target contribution to shoot for is ten percent of your income.
It can seem like a lot to handle right out of the gate and this is just the beginning, but trust me, you will get the hang of it. The biggest tip I can give to anyone is to ask questions, a lot of them. We have all been where you are and you aren’t expected to know everything. Make sure adulting doesn’t boomerang you back to your parents.
Guest post by Cory Smith is the owner/advisor of Indy Wealth Solutions, LLC, an independent Registered Investment Advisor based in Indianapolis. His goal is to be a source of information, guidance, and support for the financial well-being of those in his community.
You can normally find Cory enjoying the Indianapolis restaurant scene while supporting his Boilermakers as a proud Purdue University alumni. Connect with Cory on Facebook and LinkedIn.