1. Get an Emergency Savings Account in Place
The first thing to consider doing as a full grown “adult” is establishing a savings account that can be tapped into for emergency situations. This account should be at very least 3-6 times required monthly expenses and should reside in a liquid savings account, meaning it can be pulled out if absolutely necessary, with no penalty.
2. Pay off High Interest Debt
Banks and financial institutions make it “oh so easy” to obtain credit cards and provide limits well above what is usually needed by anyone. This leads to millions of Americans racking up credit card debt and unknowingly paying high amounts of interest every month. What’s worse? The minimum payments on these credit cards rarely ever actually bite into the principle at all so while many people believe they are doing what they need by paying the minimum payment, they don’t realize the hundreds and even thousands of dollars they are spending on interest.
So now that you are an adult, you should focus on having NO high interest debt at all. This doesn’t mean you can’t use credit cards because we all know there are some great advantages to using credit, but be prepared to pay off your credit card every single month to avoid ever paying interest. If you’re already in a position where you have credit card debt, create a plan to pay off the cards as fast as possible, starting with the highest interest cards.
Also, something to keep in mind is that low interest rate such as a mortgage or car doesn’t necessarily need the same strategy of paying it off as quickly.
3. Take Advantage of Employer Retirement Plans
One of the benefits that many overlook is the ability to save into some sort of retirement vehicle through an employer, if they sponsor one. Many organizations sponsor retirement plans such as a 401k for example and not only sponsor a plan but also match and/or contribute up to a certain amount each year. This literally means free money for you if they offer that benefit.
So now that you’ve established a savings account and paid off credit card debt, it’s a good time to start investing for your future. Start with trying to contribute enough to get the maximum benefit from your employer. For example if they match 50% up to 6%, then contribute at least 6%. Every time you get a raise, consider increasing it be a percentage or two until you max out at $19,500 (as of 2020).
4. Contribute to a Roth IRA
A Roth IRA is a little different than an employer sponsored 401k, for example. A Roth is after-tax, meaning you don’t get any tax deductions for contributing, however, if you use these funds for qualified expenses in retirement, everything you contributed and the gains are all completely tax free.
If you’re already contributing to a pre-tax 401k, this is a nice way to diversify your income in retirement. A Roth IRA can only be contributed to up to a certain income limit so be sure to check those limits or talk to a financial planner to determine what you’re able to do when it comes to a Roth IRA.
5. Set Goals and Monitor a Budget to Achieve Those Goals
This task can be done simultaneously or even before many of these tasks but is important nonetheless. It’s important to reflect on life goals and ensure you can create a plan to put those goals into action. If you’re in a relationship, take the time to discuss as a couple to determine shared goals. Goal setting and monitoring can be significantly more effective by employing a financial planner to help you through the process.
While every person’s financial journey is different and you should reflect on your own, these are some first steps to start creating financial freedom.