Many young people leave school without any formal financial education. This can lead to missteps when it comes to managing personal finances. As you leave your teenage years behind and enter adulthood, use these four financial moves to get started on the right foot.
1. Open a Retirement Account
You are never too young to start financial planning for retirement. In fact, your twenties is a great time to lay out a solid plan because it gives you plenty of time to take advantage of compounding interest and returns. You’ll have plenty of choices at this stage of the game, and, depending on your risk tolerance, you can take a few chances that may be too risky later on.
2. Purchase Life Insurance
Young adults often view themselves as invincible, but sudden illnesses and accidents can happen to anyone. Once you begin to accumulate debt or take on adult responsibilities and relationships, it’s a good idea to purchase life insurance. An added benefit of shopping for insurance at a young age is that your premiums are likely to be lower now than if you wait.
3. Execute a Will
Having a will makes things much easier for those you leave behind. That is why it’s a good idea to execute a will as soon as you become an adult. Put some thought into who will handle your estate, and make sure they are comfortable with that responsibility before naming them.
Every state has its own rules about what a legally binding will looks like, so take some time to learn about the requirements in your state. In many cases, your will can be a simple document that you have notarized in front of witnesses.
4. Build an Emergency Fund
An emergency fund will be a valuable financial tool as you go through life. Plus, starting one now develops healthy saving habits that can help you avoid accruing debt later on. Try setting aside at least 5% of your income into this fund and resist the urge to use it for rainy day expenses.
Setting aside money for retirement and emergencies and basic estate planning can help you set up a secure financial future.