Young Adult Financial Checklist

By Janet Bigham Bernstel

Life is tough enough without adding financial planning to your to-do list, especially when you’re starting out. For young adults, it’s often easier to avoid personal finance issues and adopt a "pay-as-you-go" attitude (I know I did). After all, you’re only on the way up, right? Planning comes later. Well, yes and no. Hopefully you’re on the way up, but some simple planning now will get you there faster. The path to success is a lot smoother with a roadmap, or checklist of basics. Try these for now, you can always add to them as your financial life changes. Invest in education Even if you’ve graduated college, continuing education is the best financial investment you can make for your career. Start a budget No one likes that word, really, so call it something else. How about a spending plan, or cash flow management? Just get into the habit of spending less than you earn. Stay out of debt. A big debt load will smother every other financial move you try to make. Use only one credit card and vow to pay it off each month. Can’t afford it? Don’t buy it. This way you’ll have a good credit history, and you’ll want that when you really need to borrow, such as for more schooling or to buy a home. Save ten percent for yourself Try socking away 10% of your monthly income in a separate interest-bearing account. Then you’ll have money when you really need it. Too steep? Try 5% at first, and work your way up.  Start a retirement plan. It may seem like a long way off, but it can happen sooner than you think with careful planning. Time is your biggest ally. Investments compound in value over time. In short, $1 invested when you’re 25 will yield roughly nine times more by age 65 than the same $1 invested at age 55. Don’t cash out retirement plans. In 1999, an alarming number of job hoppers took their 401(k)s in lump sum distributions. Unfortunately, they spend that money instead of rolling it over into another retirement account or an individual retirement account. Big mistake. Say it’s $1,500. Left to grow tax-deferred at 10 percent a year, it will be worth $10,091 in 20 years, $26,174 in 30 years and $67,889 in 40 years. You won’t miss the $1,500 you don’t take out at age 25, but you’ll surely miss the $67,889 you don’t have when you retire. Put it away and forget it. Buy medical coverage Even young adults get seriously ill or injured, and the debts could ruin your financial health for years, even decades, to come. If you’re not covered at work or by parents, look for a catastrophic policy you can afford. Talk over your finances with your future spouse Financial conflicts are a major cause of divorce. Be honest about your debts. Talk about your money views (are you a spender or saver), your financial aspirations, how household money will be managed, and how assets should be titled. You may want to visit with a financial planner before the big day. Important documents You want to be in control of your life? Get a will, a living will/health care proxy and a durable financial power of attorney. A will ensures that your possessions and financial assets, however few they may be at the moment, go where you want them to go if you die unexpectedly young. The living will and the accompanying health-care proxy ensures that you don’t get more medical treatment than you want if you’re terminally ill or in a permanent coma. The financial power of attorney designates someone of your choosing to take care of your finances in the event you cannot. Source: FPA