If you are just out of college and about to head out on your own, or at a point for the first time in your life that you are learning how to become financially independent, here’s a question: Are you prepared?
According to Curtis Krietzberg, CFA, MBA, a financial planner in Red Bank, NJ, and principal in Krietzberg Wealth Management, many young adults could be better equipped with the financial knowledge to handle their own finances. “We hear from the young men and women we speak with that they were never taught how to read a bank statement, let alone how to save for a large future expense, like graduate school, a home purchase, or a wedding,” says Krietzberg.
There are six basic things everyone should know about money, according to Krietzberg, in order to be financially independent.
- Spend within your means. Once you are earning an income, it is a good idea to create a budget that can help you understand how to live within your means. “Include all of your monthly expenses, like rent, cell phone bills, car payments, and groceries,” explains Krietzberg. “Once the basics are accounted for, you’ll see what’s left. With the remaining income, you should start to set aside for long-term savings and finally, short-term savings for special purchases or vacations.” Sticking to a budget is important to make sure your financial future matches your goals, said Krietzberg.
- Pay yourself first into a savings account. Once all your expenses are paid, the first thing you should do with the remaining amount is pay yourself into a savings account. “Do not wait too long to start putting money away for a future that is sure to be filled with large expenses like a home or a family,” Krietzberg says. Just like you pay your monthly rent bill, pay something into your savings account every month. Krietzberg also suggests putting as much as your budget will allow into your company’s savings plan.
- Avoid credit card debt. Many people turn to credit cards to fund expenses their regular income cannot cover. “It is too easy to put large expenses onto a credit card, and then the credit card bill comes in and it’s not so easy to pay it off,” says Krietzberg. And when credit card debt is carried over from month to month, it affects your credit rating, which can have an impact on your future ability to afford a car loan if you need a new car, or to get a mortgage when you’re ready to buy a house. Krietzberg says, “It’s best to live within your means, and strategically save for large purchases rather than rack up the credit card bills.”
- Have an emergency account for the unexpected. Life is filled with surprises, or depending on the surprise, one might call them emergencies. “It is a wise idea to set aside some funds for emergencies,” Krietzberg explains. “Anything can happen, like an expensive car repair, or a major appliance that needs to be replaced. “The best way to reduce the financial drain is to save specifically for emergencies so the funds are there if you need them.”
- Get and use the right information to help you make good financial decisions. If you need help understanding how to manage your finances, the best place to start is with someone that knows how best to help. “Financial advisors are partners that work together with you to make sure you are making confident financial decisions,” says Krietzberg. Look for an experienced, licensed professional who can help educate you on budgeting, debt management, investment management, and other financial issues.
- Have a financial plan and stick to it. The best way to ensure that all the above gets accomplished is to create a financial plan and follow it closely, says Krietzberg. “You should think about what you hope to accomplish in the next year, two years, five years and more. Based on that information, put a plan on paper and focus on budgeting, paying down debt, and both short-term and long-term savings,” says Krietzberg. “And since salaries and circumstances change, remember to revisit your plan often and make changes as needed.”
For young people who have just started their first job, the future starts now. “You cannot wait to start saving for your future,” cautions Krietzberg. “If the future starts now, your financial plan must start now as well. It is never too early to learn about and implement financial wellness strategies.”
Curtis S. Krietzberg is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Krietzberg Wealth Management is not an affiliate of Lincoln Financial Advisors Corp. CRN-5663865-050223.
Lincoln Financial Advisors Corp. and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.