So this is it, you’re about to be out on your own for the first time. Maybe you’re a new homeowner, maybe you’re renting and maybe you’re planning on starting a family straight away. No matter what, Mom and Dad’s money isn’t going to be a factor in your life anymore.
The day comes for all of us, and maybe you already do have a degree of financial independence, but this is still going to be a huge change. And it’s probably not a change that you’re prepared for right now.
So to avoid a ton of unnecessary stress and potential financial peril, you should get yourself prepared before you actually move out. Money can be a tough thing to manage, so here are some personal finance tips you should know before you leave home:
- Make a Strict Budget
You need to know where all of your money is going and you need to make sure that when it comes time to pay rent or it comes time to pay your bills, that you actually have the money set aside for it.
I would suggest a monthly budget system. Know what your total income is, both your primary income and anything else you are getting on the side, and then write down every single one of your expenses.
This includes the cost of living and bills of course but you also have to set aside some for leisure. This is the one that’s going to suffer the most but it’s a sacrifice that it is absolutely necessary for you to make.
Still though, give yourself enough leisure expenditure that you are able to enjoy yourself. Maybe just have a few less drinks whenever you go to the bar or maybe have a night in a couple of Fridays or Saturdays per month.
A strong budget is the important thing and will form the basis of responsible spending, and if you stick to it, you shouldn’t struggle financially. So now let’s talk about other things you need to factor into this budget.
- Think About a Retirement Plan
I know this might seem a little extreme because you’ve probably only recently started making an income of your own, but it’s never too early to start preparing for retirement. Not in the sense that you should be wishing your life away, but getting yourself financially ready.
There are a few different types of retirement plans that you could look into. The company that you work for might offer a 401k, which is a government-sponsored retirement account that is often offered as an employee benefit.
This has its advantages, chiefly that usually the company you work for will sort out everything for you and you can just let things play out without having to pay too much attention to it. An Individual Retirement Account (IRA) is similar but it’s not sponsored by the workplace.
You could also just have a separate bank account of your own which you put a certain amount into on a monthly basis to save up for your retirement but there are tax benefits to the other options which you won’t get.
Try and decide which option is best for you and go with that. Either way, if you set a little aside each month for the future you can look forward to a comfortable, enjoyable retirement.
- Start an Emergency Fund
You never know when an emergency could crop up. And whether it’s a medical emergency, a family emergency or a financial emergency, many people find themselves massively out of pocket when something unexpected and expensive occurs.
But there’s nothing you can do about it. Maybe you break your leg and have to pay for a surgery or your roof gets damaged in a storm and you have to have it repaired. There are lots of things that can come out of left field and cost a lot of money.
So again, I know this starting to feel like you’ll have nothing left for yourself, but factor your emergency fund into the budget every month too. It doesn’t need to be a huge amount and there’s a good chance that you’ll never even need it, but it’s better to be safe than sorry.
- Consider Investing
Investing is a great way to earn yourself a little bit of extra income and it’s something that a lot of young people aren’t even aware of. It might seem like you are just giving your hard-earned money away, but if you do it right you can be pretty confident you’ll make some returns.
Do the research and find out which companies have a good history with doling on long-term returns. Don’t try to predict the market yourself, trust the reputation of the stocks. And also, don’t back out if it doesn’t seem like a particular investment is working.
If you’ve been thorough and picked the right shares, the ROI will come. It won’t ever happen overnight but history doesn’t lie. Check out this list of quotes from Warren Buffet that covers smart investing if you want some more inspiration
Also, you should consider looking for stocks that pay out dividends. These are consistent shares of the company’s overall profit for investors, regardless of how well the stock itself is doing. Basically guaranteed income.
- Don’t Impulse Buy
Nothing will eat away at your finances faster than impulsive spending. When you’re young and don’t have too much responsibility, it’s kind of fine to spend your money on a whim.
If your friends have decided to take an impromptu skiing trip, and your leisure fund doesn’t cover it, then don’t go. Simple as that. And if you see a new suit that you think would look great on you but it costs you three times the amount you should be spending on clothes, forget it.
This isn’t going to be easy. Money is for spending, but we also need it to survive, and being careless with money has put so many people into financial disrepair. Don’t let yourself be one of those people.
Being out on your own financially for the first time is going to be scary and probably stressful, but you can prepare yourself for it. Being smart and careful with your money is one of the most valuable skills that you can learn, so be sure to get it done as early as you can.