Updated: Jan 12
Becoming an adult can be intimidating, overwhelming, and downright confusing but the fact of the matter is, you have to do it. It’s hard to understand exactly what steps to take to get your financial life in check so here are five simple actions that can get you on your way to “adulting.”
1) Get your short-term savings built up
According to a GoBankingRates survey in 2017, 61% of millennials between 25-34 had less than $1,000 in their savings account. I would expect this from someone in college or a recent grad but SERIOUSLY 25-34 year olds? We have got to get our act together as a generation and work on our savings.
A good rule of thumb is to save 3-6 months of non-discretionary costs such as rent/mortgage, utilities, groceries, etc. The best way to accomplish this if you’re living paycheck-to paycheck is to have a small amount, $5 for example, come directly out of your paycheck and get deposited into a savings account that you won’t touch. You won’t even miss it and it’ll add up faster than you think.
2) Get the right insurance
Notice that I have italicized “right” and not that you should just get insurance. There are so many questions regarding insurance and while I can’t provide recommendations for your unique situation, I can provide some types of insurance to consider.
Auto/Property—these are typically bundled (though they don’t have to be) and you’re typically looking for the cheapest price, right? Wrong! You shouldn’t simply look at the pricing and have that fulfill your need. For example, if you’re a home owner and you have a rare or special collection, you need to make sure your insurance agent/company understands that unique need. When someone steals your collection of beanie babies (Princess Di included) and the insurance company only dishes out $1,000 because that’s the limit for all perils, you’ll be SOL.
Consider your insurance agent and how they treat you as well as their process to determine the best fit for you. Or if you’re a stellar driver, try some of the new tech insurance companies without traditional “agents” that base your rates on your actual driving but still protect you (and are frankly freaking cool).
Disability—most of us don’t like to think about the potential of becoming disabled for a long or short period of time. Depending on your profession, it may be worth considering a policy to protect your income stream should something unfortunate happen. Not sure if you can afford it yet? Start with your employer and see what they offer since those group disability policies end up being a fraction of the cost of purchasing your own individual policy.
Life Insurance—this one is a biggie. With the many life insurance salesmen & women telling the world it’s a necessity, it seems as though it’s a requirement to purchase a policy. But which kind? Whole? Term? Universal? Shouldn’t there be different types of insurance for different types of situations?
Yes. And there are but unfortunately, education to consumers on which to purchase has not evolved much. What can you do then? Talk to an independent financial adviser to get a specific recommendation for your situation.
3) Get an Estate Plan
It’s hard to think about what happens in the instance of incompetence or death when you don’t *think* you’re close to it…but it is critical to address this one. Folks, I can’t stress this enough. If nothing else, at least get a simple will in place.
Wills--According to AARP, 78% of millennials don’t have a will in place. That number decreases slightly for Gen Xers but is still around 64%. You may be saying “I don’t have much that will pass down” or “my beneficiaries are clear on all of my accounts”. That may be true but you still have some personal belongings and you do not want your loved ones to have to deal with long processes in probate.
Financial Power of Attorney—this allows a named individual to act on one’s behalf regarding financial affairs should it be needed. No need to belabor the point—just get it done and make sure it’s the right person. Not a boyfriend of 2 weeks.
4) Know your tax deductions (and use them!)
This is something to consult your CPA, EA, or Financial Adviser with but I’m simply saying that as a new found “adult”, it’s important to at least know what the word tax deduction means. There are actions that can be taken that not only encourage long-term savings but also give a tax break in the process. This becomes increasingly more important as income rises but either way it’s important to know these. Some of the common ones are:
· 401k/IRA contributions
· HSA contributions
· Self-Employment expenses (yes, you gig economy folks)
· Student loan interest
· Educator expenses
5) Hire a financial adviser
You didn’t expect a financial adviser to write a post about “how to adult” without mentioning the need for one of us, right?
All joking aside, I’m not saying that you need to pay thousands of dollars for a full plan if you don’t need one. I’m simply stating that when your life starts to have even a small level of complexity, it makes sense to have a professional take a look and help you with educated decisions about your financial future.
A financial adviser isn’t just someone who manages your portfolio (we have robos for that), but someone who is a partner with you and can ensure the vision you’re building for your life, whatever that may be, is in line with your actions and values.
Now go on and get it, adult.
Huddleston, Cameron. “More Than Half of Americans Have Less Than $1,000 in Savings in 2017.” GOBankingRates, Sections Best Brokers 2018, 5 June 2018, www.gobankingrates.com/saving-money/savings-advice/half-americans-less-savings-2017/.
Lumpkins Walls, Barbranda. “Survey: 60% of Americans Lack Will or Estate Planning.” Saving and Investing, AARP, www.aarp.org/money/investing/info-2017/half-of-adults-do-not-have-wills.html.