Twenty-somethings may not realize it, but every time they enter a new phase of life they are also venturing into a new world of money management. Here are some ways to be prepared.
Save Money Now to Make Your Future Dreams a Reality.
Even at this stage of your adult life, it’s smart to save for long-term goals, perhaps buying a home, owning a business or saving for retirement (even though that may be 40 or 50 years away).
To help you stay focused on saving money and controlling your spending, think about creating a formal or informal budget. “The important thing is to understand how much you earn each month, how much you pay for essentials like rent or transportation, and how much is left over for everything else,” said Janet Kincaid, Chief of the FDIC’s Consumer Response Center. The spending choices you make in the “everything else” category are critical to successful money management.
Also, to make saving easy and painless, consider arranging with your bank or employer to automatically transfer a certain amount each month to a savings or investment account.
Build a Good Credit Record.
As you begin to pay your own debts, you are also building a credit record. Companies called credit bureaus are authorized by law to collect information on each person’s history of paying debts, which is then used to prepare “credit reports” and summary “credit scores.” In general, the better your credit history and credit score, the better your chances are of getting a loan and or credit card, with an attractive interest rate. Credit reports and scores also can be considered when you apply for a job, an insurance policy or an apartment.
One of the best ways to build and maintain a good credit record is to pay your credit card bill and other debts on time — to show you are a reliable money manager.
If You Need to Get a Car, Consider the Best Way to Pay for It.
For many young adults, their first big purchase and ongoing expense is their vehicle. Often, the first question is whether to buy (which may involve taking out a loan) or lease (which is similar to renting a car for a few years).
There are advantages to both leasing or buying a vechile. If you lease, the monthly payments are usually lower, but at the completetion of the lease you do not own the vehicle and may owe a large sum of money. If you choose to buy, your monthly payments may be higher, but you will be able to trade in or sell your vehicle.
If You are Renting a House or Apartment, Consider if It’s Time to Buy.
Once you start earning a good, steady income, you’ll most likely face the decision about when is the right time to own your first home. Home ownership is a big financial commitment, and values can sometimes go down.
First look at the costs of renting versus paying a mortgage. It is important to be realistic in what you can afford, because you will have the added expenses of real estate taxes and insurance, mortgage interest payments and the cost of home maintenance and improvements. There are also advantages to owning your own home, such as tax benefits, the potential for it to appreciate in value and most importantly its a place to call your own.
Other factors to consider include how long you plan to stay in the house, how much money you have for the down payment, and how good your credit record is.
