Seven financial steps to take once you're on your own
You鈥檝e got your first real job and your own apartment. Now it鈥檚 time to ensure your financial well-being.
This means taking care of your immediate obligations, planning for future wants and needs, and ensuring that you鈥檙e set to handle the unexpected. If you have a car, it means buying your own聽. If you have a partner or dependents, it means buying life insurance.
Here鈥檚 how to turn your big聽personal finance priorities into manageable goals.
1. Create a budget
Sticking to a budget can聽enable you to meet your financial goals while still paying your rent, buying groceries聽and having some fun. Don鈥檛 have one yet? Here鈥檚 what you need to do to set up a budget:
- Determine the amount you earn each month,聽including your take-home pay and other sources of income.
- Figure out how much you spend each month, including your fixed costs 鈥� such as rent, utilities, car payments and student loan payments 鈥� and an estimate of your variable expenses, such as groceries, health care copays, shopping and entertainment. Use receipts or your checking account statement if you鈥檙e unsure of specific amounts.聽
- Compare the amount you earn to the amount you spend.聽If you have enough left over to put money aside for goals 鈥� such as聽building up your financial cushion, paying off debts or saving for retirement 鈥� the budget you have might be fine. If not, you鈥檒l need to cut back on your discretionary spending.聽
- Rewrite your budget, if necessary, allocating at least some money for savings and long-term goals.
- Revisit your budget聽at least once a month to ensure that you鈥檙e staying on track. If your financial circumstances have changed, you should also update your expenses, financial goals or聽available income.
These days, technology makes budgeting easier than ever. If you鈥檇 like some help, check out the聽best聽.
2. Save for retirement
You may have just adjusted to working all week, but it鈥檚 already time to think about life after leaving the workforce. NerdWallet recently found that聽, assuming they start putting away 6% of their income at age 23 and earn a 6% return. Put off saving and you鈥檒l be working longer. Bump up your savings rate to 10%, on the other hand, and you should be able to retire five years earlier.聽At the very least, save enough to receive the maximum聽employer match on your company鈥檚 401(k).
Saving early is critical. It聽gives you more time to benefit from compound interest, the interest you earn on previous interest gains.聽
If you think you can鈥檛 afford to save now, remember that it won鈥檛 get easier once you have a mortgage and children. It鈥檚 best to get into the habit right away.
3. Inflate a financial cushion
You never know when you might lose your job, get sick or injured, or experience another emergency. That鈥檚 why you should set money aside to keep you afloat if need be.
Experts recommend having six months鈥� worth of living expenses in reserve. That鈥檚 a big ask for many young people, but if you can put even a little bit of each聽paycheck aside for emergencies, you鈥檒l be making progress.
4. Plan for your future
Do you dream of buying a home, throwing a splashy wedding, or stepping out of your career for a while to care for a baby? All these things cost money. Now is the time to think about your long-term goals and start saving up.
5. Buy聽renters insurance
If you鈥檙e like most young adults, your first home is an apartment. Though you鈥檙e not always required to have聽, the way new homeowners usually need to buy homeowners insurance, it鈥檚 often a good idea.聽A policy will pay to replace聽your possessions if they鈥檙e stolen or damaged by fire or another disaster.
The average cost of renters insurance is $15 to $30 a month, according to the National Association of Insurance Commissioners.聽
Once you buy a policy, create an聽inventory of聽your possessions, with photos, serial numbers, model numbers, receipts, dates of purchase and prices. This will be聽crucial in proving聽exactly what you lost if your belongings are damaged or stolen. Keep a copy in a safe place away from home, such as a safe deposit box.
6. Shop around for car insurance
Once you no longer live with your parents, you (and your car) can鈥檛聽be on their car insurance policy. And even if your parents like their insurer, it鈥檚 not smart to buy from the same company without comparing prices for yourself.
Auto insurance companies base your rate on factors including聽your driving record, age, location, gender, car model and, where it鈥檚 legal, your credit history. But each company聽weights these factors differently,聽meaning that you might pay a much higher premium at one insurer than another.聽
Having your own policy also lets you tailor your聽auto insurance coverage to your situation. Your parents may have higher liability limits than you need, for instance, because they have more assets to protect from lawsuits if they cause a car accident. In addition, if you have an old car that鈥檚 not worth much, it may not make sense to buy comprehensive and collision insurance, which pays for damage to your vehicle, or theft, but only up to the vehicle鈥檚 value.
7. Think about the end
Estate planning聽may seem premature, but getting a jump on the paperwork is always a smart move. You should:
- Designate beneficiaries for your employer-provided retirement plans and life insurance coverage.聽Consider buying聽聽if you have a partner or dependents.
- Draft a will聽if you have any assets that you鈥檇 want to go to particular people.
- Designate a聽power of attorney聽to handle your affairs if you become incapacitated.
- Write a living will聽that spells out the聽medical measures you鈥檇 want taken (or not taken) if you were seriously injured or ill.
As you age, you鈥檒l probably experience聽more financial milestones, including buying a home and saving for your children鈥檚 college education. But these first steps will help your journey start off smoothly.
This article first appeared at
