Financial responsibility plays an important role in growing up and becoming an independent adult. The sooner you learn and become comfortable with the responsibilities of finances, the quicker you’ll be on the road to financial success. The following five tips provide teens a starting point and pathway towards a strong financial future.
Start Saving Early
So you’ve gotten your first job and have your own income now. It feels great seeing your first direct deposit coming into your checking account and you can’t wait to go out and spend it how you want! But first, consider taking a portion of your finances and putting it into a separate account such as a savings account. You might be surprised how even just a small portion, such as 5% of your pay check for example, being put aside into a savings account will grow over time. This type of savings makes for a good emergency fund if and when you ever find yourself in an unexpected predicament.
Establish & Monitor Credit
Your credit score is a main indicator to lenders of your ability to repay a loan and having strong credit can help you in many ways. Most importantly, your credit score plays a major role when being qualified for a loan request. If for example you apply for a credit card, personal loan, auto loan, car loan, a mortgage, etc. your credit score will most likely be a determining factor of whether or not your request is approved or declined. Your credit score may also have an impact on the interest rate you receive and the closing costs you pay. Borrowers with high credit scores usually qualify for the best interest rates and lowest closing costs. And if you don’t plan on buying a home, many landlords also check your credit before renting you an apartment. If you’ve never had any type of credit card or loan in the past it’s likely you don’t have a credit score yet. A good way to get started is applying for a small gas card or department store card. As you build your credit you will be able to qualify for larger unsecured credit cards, car loans, mortgages, etc. Once your credit is established be sure to monitor it and make sure it’s always accurate. You are entitled to a free copy of your credit report once every twelve months. If you find incorrectly reported data on your credit report, such as a loan that doesn’t belong to you or a false late payment, you can dispute the invalid data directly through the credit bureau to keep your score up to par.'
Set Financial Goals
Financially, where would you like to be six months from now? Do you want to grow your savings account from $100.00 to $1,000.00? What about six years from now? Take a few moments to think along these lines and write down at least one or two short-term and long-term goals. Setting yourself goals by writing them down on paper will help you keep focused on reaching your financial dreams and it’s an important part of being financially responsible.
Create a Budget and Stick to It
Once a month take some time to review your spending habits. Look at previous bank statements and note where you’re spending money. Break up your spending habits into categories so you can see how much you’re spending in certain areas such as gas, fast food, coffee, etc. When finished with this exercise you might be surprised by your findings. A $2.00 coffee multiple times per week can start adding up fast! From there you can create a budget and limit your spending where necessary. Doing so will control your spending which results in extra money leftover for savings.
Contribute Towards Your Retirement
Retirement may seem a long way off at this point in your life, but start thinking about it now. Early retirement planning and savings can result in a more enjoyable retirement. Check with your employer to see if they offer a retirement plan, such as a 401(k). Also consider opening yourself a Traditional or Roth IRA and contribute to it consistently. The earlier you start saving for retirement the faster you’ll grow your wealth and possibly someday you will be able to enjoy an early retirement! If you start saving early, establish and monitor your credit, set financial goals, create a budget and stick to it, and contribute towards your retirement, you’ll be setting yourself up for financial success. Some of these tasks may sound daunting at first, but overtime will become second nature. The longer and earlier you can get into good habits, the better your finances will be when you get older. What have you done to set up your financial future?