Money Choices for Young Adults

Congrats! This may be a moment when you have graduated from high school or college, or started your first job – or even a time in your 20’s when you can take a deep breath – and you want to use this moment to look at the money side of your life. That’s great!

You know that it’s important to take charge of your financial life, but you may not know what that means or where to start. We understand that this can seem daunting. That’s why we have MSA Money Coaches who can personally help you to plan your money life and assist in setting your financial goals and creating a path to achieve them.

Figure Out Where You’ve Been Before You Decide Where You Go
Track your monthly spending to really see where your money is going now. You can do that by looking at your debit card or credit card spending. Make a note if the spending was a want or a need. This can aid you as you decide on a workable budget that can help you to achieve your goals. You may see how you can adjust some of your spending without feeling the sacrifice. For instance, a simple thing like bringing your lunch to work may save you $50 a week, or $2,600 a year, which could be put towards a vacation instead.

Set Your Goals
This is about you and the life you want to build. Goals can change, so you’ll want to re-examine them periodically. You, for instance, may currently be single without kids. If you decide to partner and have kids, your goals could change to include college savings.

Divide your goals into short-term, medium-term, and long-term goals. A short-term goal might be something like building emergency savings, while medium-term goals could include things like buying/leasing a car, buying a home, or taking vacations. Long-term goals could be items such as saving for retirement, your kids’ college, or buying a vacation home. The next challenge is putting a price tag next to each item; otherwise, this exercise will not be that helpful. Once you have established the goals that are important to you (and the associated cost), then you can build your budget to achieve your goals.

This may seem daunting, but researching options and figuring out costs can actually help you narrow down what you need. For instance, you probably know what type of car you want and the general cost range. When you start to really look at all the related expenses, you may decide that you will be just as happy with a used car instead of a new car. Another example could be buying a home: you may know that you want to purchase a house, and if interest rates are low, it may make more sense to buy a starter home and save for a larger home down the road.

Create a Real Budget
Many people go through the budgeting process but don’t stick to it. It’s like signing up to go to the gym and never showing up to exercise. It’s your body, and it’s your financial future. With both, it’s hard to make up for lost time.

A budget that helps you reach your goals is actually exciting. Make sure that if you have a partner that both of you are involved in each aspect of your mutual money life. This is a great time to review your spending patterns and see what is a want and a need.

Try to divide your expenses into fixed and variable categories. Fixed expenses are items like rent/mortgage, utilities, student loans and other loan payments, savings and emergency funds. These are the expenses that you can’t really influence. Variable expenses are items like entertainment, travel, food (Some are fixed.), vacations, etc., that you can influence. For instance, you need to eat, so food will always be in your budget; that said, you can influence, to an extent, the amount you spend on food. Recall the earlier example of making your lunches at home versus eating out all the time. This is where looking at your current spending and your other options can reveal how you might adjust daily habits to better align with your financial goals.

Beware of Things That Can Derail You
There are two major things that can derail your wonderful plans: poor credit and too much debt. Life can also throw you curveballs: you could lose your income, or you or your family could suffer from health issues. Some things we just can’t plan for, but let’s deal with the things we can control.

Poor Credit
There are credit rating agencies that collect information from all of your creditors and then give you a credit score; the most common type is called a FICO score. Your score tells creditors how financially responsible you are. The scores range from a low of 300 to a high of 850. A score of 740-799 is considered very good. Poor credit, on the other hand, can be expensive and keep you from reaching some of your goals. If you want to buy a home, your goal will likely include a mortgage. Your credit can influence things like the interest rate on a mortgage. Generally, the lower your credit score, the higher your interest rate and the more money you’ll pay over the life of the loan.

Good practices for improving and maintaining a credit score include action steps like making sure you don’t carry too many cards, trying not to use more than 30% of your credit limit, and always paying on time. You can also talk to a Money Coach, who is a Credit Specialist, for more information.

Too Much Debt
Too much debt can also impact your credit score, as well as impact your ability to reach your goals. You may be paying off student loan debt, car loans and credit cards, or perhaps you already have a mortgage and are dealing with those debt payments as well. There are different repayment strategies you can try to effectively manage your debt. Talk to a Money Coach for more details on the options and for help determining which one is best for your situation.

Even when you are paying off debt, don’t forget to save for the things you want. A Money Coach can also help you assess your spending and talk about how you might balance your cash flow to include both debt payments and savings goals.

You can really feel great when you get a handle on your financial life. We are here to help you every step of the way.