Unfortunately, most high school students don’t go through a class that teaches how to manage finances, stay out of debt, and save for retirement. Then, these well-educated young adults graduate. Some go to college, others learn a trade, and others jump into their careers.
If you’re a young adult feeling lost in the world of personal finance, you’ve come to the right place. We’ll cover different types of insurance, including whether 250k in life insurance is a good starting place and why it’s essential to start planning for retirement now.
Financial Tip #1 – Get Life Insurance
Life insurance is one of the best ways to ensure your loved ones are provided for if something happens to you. However, you may wonder why you should purchase a life insurance policy if you have no dependents and no significant debt.
As a young adult, you may not need a life insurance policy, but you most likely will as you age. And purchasing life insurance is cheaper the younger you are. So, if you’re a forward thinker, now is the time to buy a policy.
If you have dependents, you need a term life insurance policy. A term policy is the cheapest way to secure enough money for your dependents to continue their current lifestyle if you die.
So, if you think a life insurance policy is something you should buy as a young adult, you may wonder how much you should start with.
To give you a basic idea, you can multiply your annual income by 10. Even though you’ll likely be making a lot more money by the time your term policy expires, you can start with what makes sense now and add a secondary policy as needed.
Financial Tip #2 – Purchase the Appropriate Home and Auto Insurance
Your car and home each carry a significant liability risk. For example, if you cause a crash and the other party sustains injuries requiring surgery and rehabilitation, you could be faced with a lawsuit for $100,000 or more.
And if someone is injured on your property, you could be liable for their medical costs. Even if you hired a lawyer and won the lawsuit, your legal fees could be unaffordable.
In addition to liability risk, you also risk losing your property. For example, if your home is destroyed by a fire, could you afford to rebuild it? Or, if your vehicle is stolen and unrecovered, could you afford to buy a replacement?
Insurance is the best way to protect your liabilities and assets. However, when it coems to auto insurance, the minimum liability coverage required by your state is too low for adequate coverage, so you’ll need to consider higher limits.
An excellent place to start is with $100,000 for bodily injury liability for one person and $300,000 for bodily injury liability for multiple persons. And if you want protection for your vehicle, you’ll need comprehensive and collision coverages.
When you’re evaluating home or rental insurance policies, be sure to compare your premiums with different deductibles. The higher your deductible, the lower your monthly premium, so you will need to decide how much deductible you’re comfortable with. If something happens to your home, the deductible is your financial responsibility.
Financial Tip #3 – Make a Budget
A budget is for everyone. No matter how young you are or how much money you make, setting a budget will help you establish good habits that you’ll carry with you throughout your entire life.
Remember that your budget should reflect your personality and desires. Budgeting doesn’t have to be restrictive. Instead, you should look at it as a plan to get the most out of your money.
Financial Tip #4 – Plan for Retirement
Retirement may seem like a distant dream, but don’t let that keep you from starting your retirement investments. It would be great if your job came with a great pension, but fewer and fewer employers offer that perk because it costs them a lot. So, most people have the responsibility to set aside money for retirement.
Starting now, you won’t have to scramble as you approach retirement. Instead, you’ll establish good investment habits.
Take advantage of tax-advantaged retirement plans like IRAs and 401(k)s, especially if your employer offers a contribution matching program.
If you feel lost thinking about retirement, work with a financial advisor who can answer your questions and provide advice to set you up for success.
Financial Tip #5 – Find Balance Between Earning Money and Building Relationships
Everyone is different. Some people would rather work as little as possible and spend time with those they love, while others desire to build a fortune more than anything else.
The important thing is to find a balance. Both relationships and income are essential to your quality of life. So, don’t neglect relationships in search of riches, and don’t avoid employment advancement opportunities because you just want to hang out at home.
As a young adult, you’re in the best position to take steps that set you up for a lifetime of financial security. So, follow these tips and enjoy where good money management takes you.