Independence Creates Responsibility

You couldn’t wait to get out on your own, away from the vigilante watch of your family, into a whole new world of independence. But now you’re on your own under the watchful eye of the real world, where bills need to be paid. And the real world isn’t nearly as forgiving as your family.

Just remember, you never get a second chance to make a good financial start, that’s why it’s so important to be vigilant about your personal finances from the beginning. Here are a few tips for getting off on the right foot. They may seem obvious, but serve as good reminders:

• Create a budget and stick to it. Know how much money you bring home and how much you owe. If you have to cut back, start with the things you can easily live without—morning lattes, eating out, travel, etc. The important thing to remember is to live within your means. There’s no faster way to dig a financial hole than to buy things or do things you really can’t afford.
   
• Be sure to include saving as a part of your budget. Create an emergency fund for unexpected costs such as vehicles repairs, health issues, job layoffs, etc. Experts recommend that you have enough to cover three to six months of living expenses. Setting up an automatic transfer into a dedicated account could be helpful here.
   
• Watch your credit card(s). Use no more than 30% of your available credit. If you can’t afford to pay off the balance at the end of the month, consider using cash. If you only pay the minimum each month on your balance, consider this: if you carry a balance of $700 on a card charging 18% interest and pay only $25 each month toward your bill, it’ll take three years to pay off the balance and cost you $286 in interest.* And that’s if you don’t make any additional purchases!
   
• Pay bills on time. This helps you in two ways. First, you avoid any late payments fees, which can add up quickly. Second, a pattern of late payments can hurt your credit score, which can cost you down the road when you apply for loans. If you have a problem remembering to pay your bills on time, try automated online bill payments.
   
• Save for retirement. It may seem like a long way away, but starting early on retirement investing will prove beneficial in the long run. The earlier you start investing, the more time your money has to grow. If a 25-year-old invested $200 a month and earned an average return of 10%, he’d have $1.3 million at age 65.*  You can always start small and add to your savings as your salary increases. The key is to start early! A good start is to invest with an employer’s 401k plan. Many employers offer a match of some sort for employee contributions.

While heading out on your own is an exciting time of your life, it involves responsibility. Paying attention to your financial situation is a good way to make sure your brush with independence is both productive and long-lived. Vantage can help you if you have any questions on any of these points.

_{* Kiplinger.com}