f no one depends on you for financial support, your path to financial security should be relatively short and smooth. But it is a journey you should definitely begin. Putting off the basics – reducing debt, starting a savings program, planning for retirement – only makes things more difficult and expensive in the future. The sooner you start, the better off you are.
Get Debt Under Control
Many young people begin their prime earning years under a pile of debt that usually includes college loans and credit-card bills. Credit card debt should be your first concern because it is so expensive. Your first step should be to consolidate all your credit-card debt onto the lowest-rate card you can find. Consider a credit counselor if your bills are out of control, but choose carefully. Some charge excessive fees. A non-profit credit counseling agency is your best bet. Try negotiating with creditors yourself. Some might be willing to reduce what you owe rather than risk writing off the entire debt. Because college loans are typically at low interest rates, paying them off is a lower priority.
Get into the saving habit early. Money you begin accumulating now will one day help pay for your wedding or the down payment on your first home. You’ll also want to create an emergency fund equal to three to six months worth of basic living expenses. When you consider all the demands on your monthly budget, the thought of setting aside money for long-term savings probably seems quite daunting. Fortunately, you have time on your side and that’s very valuable. The power of compounding will really pay off one day. Just $25 a week set aside over 15 years builds a net egg of more than $31,000, assuming a 6% annual return.
If you haven’t already, you should immediately enroll in your company’s 401(k) retirement savings plan. This will probably be the primary source of your retirement savings, so you should start early. Some companies match employee contributions to these plans, so not participating is like turning down free money.
Protect What You Have
Most single people don’t need life insurance because no one depends on them financially. But there are exceptions. If you provide financial support for aging parents or siblings, you may want to consider it. It may also be appropriate if you have substantial debt you wouldn’t want to pass on to surviving family members if you were to die prematurely.
Other types of insurance are a must, even for single people. If you borrow money to buy your car, the lender will require you to purchase at least some insurance to protect your investment. In addition, state laws require drivers to have liability insurance as well.
Health insurance is also a must. Most Americans have health coverage through their employer’s group plan. If you don’t have health insurance through work, look into to buying an individual policy. The good news is, if you’re young and healthy, you’ll get the best rates available.
Count disability insurance in the must-have category as well. A young person is actually four times more likely to become disabled than to die. Disability insurance will replace a portion of your income if you are unable to work due to a disabling illness or injury. Many larger companies and some smaller ones offer some disability coverage to employees through a group plan. If you think you need more, it may be worth buying additional coverage through your employer’s group plan, if it is available. Buying your own disability insurance policy outside of work is another option worth considering. Unlike group coverage, privately owned insurance stays with you even when you change jobs.
Finally, if you’re renting, don’t assume the landlord’s insurance will cover you in the event of a fire or theft. You need your own renter insurance. It protects the things you own and helps you establish a good insurance track record. If you demonstrate you’re a good risk, it will be easier and cheaper to get insurance in the future.