So, you’re ready to take the leap and leave the nest. All you need is a stable job that can cover your rent, right? Think again! A recent study by Pew Research suggests over 50% of youth who moved out (aged 18-29), found the real world too overwhelming, called it quits, and moved back in with their parents. And its no wonder when 87% of teens admit they know very little about managing money (ING Direct). How will you avoid becoming another “boomerang kid” statistic? You can start by learning a few financial basics. Here’s a check list to get you started:
1. Understand payroll deductions.
Before you decide how much to splurge on your new digs, make
sure you understand how much is actually going into your bank account. Depending on where you work, how much you make, whether you belong to a union, and your company’s benefit and retirement plans, you could end up with a significantly smaller paycheck than you expected. Some deductions are out of your control, others may be optional. Speak to your employer about your choices, weigh out the pros and cons, and get a clear picture of what your bank deposits will look like.
2. Make a bank appointment.
You’ve got a bank account, but how much do you know about how it works? It’s time to face that fear and book an appointment with a bank advisor. You can learn all sorts of things such as:
- Which accounts provide the most interest
- How to read a bank statement,
- What investment accounts are available,
- What bank fees do you need to be aware of and how can you avoid them,
- How to pay bills and set up automatic withdrawals.
While you’re there, talk to the bank about getting a credit card if you don’t already have one. These days, a credit card is needed for everything from renting a car, to booking a hotel room. It can also help build your credit score and get you out of a pickle in emergencies. Just make sure you understand how your card’s interest rate and annual fee works and have a plan to pay off what you spend. Credit card debt can quickly land you back in your parents’ basement!
3. Create a realistic budget.
Make a list of all your reoccurring monthly expenses, including things such as rent, utilities, car/loan payments, insurance, cell phone, etc. Next, add in the essentials such as gas and food. This should start to give you a more realistic picture of what living on your own will cost, and let you know how much you have left to spare. Just as important as creating a budget, is sticking to it. Need some help? There are a number of free apps that make it easy (and dare I say fun) to create and track your budget.
4. Hold on to your pennies.
You’re too young to worry about saving money, right? That’s
the attitude of nearly half of youth (18-24). The truth is, having some money in savings can make or break your ability to enjoy life and stay afloat. Think about putting some money aside for emergencies, a vacation, and yes, even retirement. You’ll be surprised how fast it can build up, and your future self will thank you!
5. Don’t treat your bills like library books.
You might put effort into managing your online reputation, but how often do you think about your financial reputation? If it helps, think of paying your bills like financial clout; but instead of building followers, you are building up your credit score. This is important when you apply for your first mortgage or a loan. On the flip side, not taking bill payments seriously can harm your ability to move forward in life. Your payment history, no matter how small, is the biggest ingredient in your credit score, so don’t procrastinate! If you have trouble remembering, talk to your bank about setting up automatic payments, set reminders in your phone, or pin them to your fridge with magnets.
A little financial knowledge and some healthy spending habits will take you a long way towards self-sufficiency. Good luck and remember, there are no foolish questions. If you’re at a loss, the most mature response would be to ask!
