Adulting is hard, especially when it comes to money. If you're like me and you took a personal finance class in high school or college, you probably don't remember much because the information wasn't relevant to you at the time. Well, now you're almost done with college and you're ready to be welcomed into the real world as a freshly-minted adult. Suddenly you realize that class was probably one of the most important classes you ever could've taken.
Here are 11 tips to start making money moves today.
1. Start building your credit
It may not seem important now, but it's a good idea to start building your credit early. In three to five years or so, when you're ready to apply for a car or home loan, you're going to want to be approved to get the best interest rates, and that means having a credit score of at least 760. See tips two and three for more on how to increase your credit score.
2. Open a credit card if you don't have one already
One huge factor in your credit score is how long your oldest credit card account has been open, so you want to make sure to start early. A first card many people get is called a "secured" credit card, which basically acts like a debit card so the bank knows you won't go all "Shopaholic" and max it out. Make sure to pay every single one of your monthly payments on time and in full. No excuses, no exceptions.
3. Make all of your student loan payments on time and in full
JUST DO IT.
4. Embrace the concept of paying yourself first
Paying yourself first is a concept that many millionaires, even billionaires, swear by. Decide how much of your income you want to save. Then set up a portion of your paycheck to deposit directly into your savings before you can even think about it. The rest can go to your checking account for spending on bills, food, rent, and other expenses.
5. Build a three- to six-month emergency fund
Did you know that 33% of Americans would struggle to pay $1,000 in an emergency? This is a serious issue. You don't want to ever experience living "paycheck to paycheck," let alone have a minor crisis throw your life upside down. That's why you're going to build this emergency fund before you do anything else with your money. Think of this fund as something that you can't touch until you absolutely need it. If and when that time comes, you'll know, and you'll be so grateful that you were smart and were prepared.
6. Open a Roth IRA
There are so many things to be said about Roth IRAs and why you should get one as a new college graduate. In short, IRA stands for Individual Retirement Account. A Roth IRA is unique because any money you put into it is taxed now, so you won't have to pay taxes on it when you're retired and ready to use it. The main benefit: you also won't have to pay any taxes on the money you earn in the account. In addition, because you're young, you get to take advantage of the power of compound interest for a long time before you retire. This could potentially earn you hundreds of thousands of dollars. The best time to open a Roth IRA was yesterday. So go do it now!
7. Contribute as much as possible to your 401k
A 401k is basically an investment bank account that you can't use until you retire, and it will be taxed once you start using it (so it is not taxed now). Many employers offer 401k matching, and they open one up for you when you start your first job. If your employer offers 100% matching up to 6% of your salary, that means that if you can afford to put 6% of your income into your 401k, your employer will also contribute the exact same amount. Listen to me: this is free money. I like free money. You like free money. Take it.
8. Open a high-yield savings account
This is 2019. Don't keep your money in cash or in a regular savings account, where it'll depreciate 2-3% in value every single year it sits there. Get yourself a high-yield savings account, in which interest rates are anywhere between 2.0 and 2.25%, and watch your money make money while you sleep.
9. Start tracking your spending
Since it has become much easier to make quick and painless purchases these days, you should definitely be aware of your spending. I personally like to use a free app, like Mint, that does all the work for you because it puts all of your financial accounts (ie. savings and checking accounts, investments, loans, assets, etc.) into one place.
10. Create a monthly budget for each of your spending categories
These include food, housing, transportation, entertainment, subscriptions, health and wellness, and maybe more. You should know the things you always buy on a monthly basis and how much they typically cost. Comparing your budget to what you really spent after a month will show you exactly where your weaknesses are. Try to stay at or under your budget for each category every month unless there's an unusual event, like a vacation or a car repair.
11. Learn the basics of investing
Compared to the other tips on this list, this is one you can put on the back-burner for a bit. However, that doesn't make it any less important. It's critical for everyone who is financially independent to understand the basics of stocks, bonds, Exchange-Traded Funds, Mutual Funds, REITs, and more that you can use to diversify your portfolio, including in your new Roth IRA and 401k!
What are you waiting for? Up your financial game!