Smart Financial Planning Tips for Young Adults

Guest post from Chris Haymon of Adulting Digest.

Millennials are fairly well-established in the workforce, and now Generation Z, those born in the late 1990s and early 2000s, are now entering the workforce. Unfortunately, the BBC reports that many of today’s young adults are working more (and earning less) than previous generations did in their 20s. That’s why it’s important that young adults do smart financial planning now.

Financial planning might not be the most appealing topic for young adults. After all, it takes long-term, consistent work to become financially independent. Sadly, many schools still don’t teach personal finance classes, and research shows young adults still have a lot to learn.

Millennials, for instance, aren’t as savvy about money as they might believe, a recent study shows. Less than half of the respondents could answer a fundamental investment question, despite feeling confident about their financial knowledge.

It doesn’t have to be all doom and gloom, though. If you’re a young adult, here’s how to plan for your future and protect what you earn.

Estate Planning

Although death is a morbid thought, it’s crucial to consider what will happen to your estate if you unexpectedly die. As uncomfortable as it is to consider your death, it’s necessary to help your loved ones better cope with the loss.

Estate planning isn’t just for the elderly or for those with a lot of assets. We can die at any age. By planning ahead, you’ll have peace of mind and know what will become of your belongings, home, and money in a worst-case scenario.

Consider having the following:

  • Life Insurance
    When it comes to buying life insurance, many young adults aren’t sure what plan to purchase. How much money and how many years will you need? A 20-year term life insurance policy is an excellent fit for most young adults, particularly those who have young children or have 20 years left on their mortgage. It provides the maximum years of coverage at a lower cost. When buying life insurance, choose a reputable, quality company with a strong financial insurance rating.
  • Living Will
    Many young adults shrug off the idea of a living will because they’re unmarried and don’t have kids. However, your situation might change in a few years. Whatever your situation, it’s always a good idea to have a will ready in case you need it. Without one, your estate must go through your state’s probate system, and the court will determine how to distribute your estate. Having a will helps you dictate what happens to your money and possessions if you die and minimizes any costs associated with handling your assets and liabilities.

Many employers offer life insurance benefits. Some companies, like Home Depot, even provide free legal services to assist with estate planning and living wills. Each benefits package is different. If you’re uncertain or have questions, talk to your employer’s human resources department.

Investing

Whether you plan to work until age 65 or dream of retiring by age 30, you need to invest in the stock market. Even with all its risks, the stock market is one of the best ways to grow your wealth and account for inflation. Best of all, the earlier you start investing, the better.

Many Millennials prefer to invest in sustainable companies. “Even without much money,” Bill Davis, CEO of Stance Capital, notes, the Impact Generation is “forcing corporations to change for the better” through purchases and investments in eco-friendly brands.

A diversified investment strategy will protect you against industry-specific ups and downs. Be sure to spread out your investments into the various categories like small cap, mid-cap, and large cap to ensure your eggs are not all in one basket.

Another investment you can make is purchasing a home. Of course you’ll have to save up for a down payment, but this may not cost as much as you think as many lenders are offering loans that require much lower down payments. Just be aware that the more you put down, the less you’ll pay in interest and mortgage payments, as well as PMI (private mortgage insurance) if you don’t put down a full 20% on a conventional loan.

Although it might be tempting to do everything yourself, you’re probably better off hiring an asset management firm. Financial advisors and financial services firms help young adults manage money. With the right asset management, you’ll build a profitable investment portfolio comprised of companies you fully support.

Fraud and Identity Theft Protection

You’ll also want to protect your credit and identity. In addition to avoiding debt, keep an eye on your credit score and accounts open in your name. With cybercrimes and data breaches on the rise, your personal information has probably already been compromised, possibly without your knowledge.

Monitor your credit score and credit report. Consider placing a free credit freeze to stop unauthorized individuals from opening accounts under your name. Purchase an identity theft protection plan from a reputable company, preferably one that does active monitoring and the whole restoration in the event of a breach. If you suspect your information was stolen, notify your bank, the credit bureaus, and the IRS as soon as you can.

Although budgeting for your future and managing your money isn’t always fun, it’s an essential part of adulthood. It’s never too soon to start building the life you want to live. By getting your finances in order from a young age, you’ll be setting yourself up for a successful future. Financial stability will bring you freedom and peace of mind. By monitoring your credit, investing, and staying insured, you’ll protect your wallet and your well-being.

To read more of Chris Haymon’s material, visit AdultingDigest.com.

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