If you were born between 1981 and 1996, you are a millennial. Older millennials are now in their early 40’s. Younger members of the generation are finishing college and starting careers. Some are already doing their first 401k rollover. That experience falls into the category of “money management basics.” Here are some other actions that fit that description.
- Understand how credit scores work
Your credit score will determine your eligibility for credit cards, loans, and mortgages. Research how your score is calculated. The agencies that keep track of your credit history give you positive marks for on-time payments and low balances on your credit cards. Late payments, high balances, and loan defaults cause your credit score to go down.
- Learn how to budget your money
There’s a big difference between thinking you can afford something and doing the math to see if you have the money to spend on it. Learn how to create and manage a budget. Several mobile apps can help you with this, or you can create a spreadsheet to compare your total income with your total expenses. The numbers may surprise you.
- Pay cash instead of using your credit card
Credit cards can be a great financial tool if used responsibly. Unfortunately, excessive credit card use can be detrimental to your financial health when you’re unsure how to use them correctly. Credit card companies charge a variable interest rate on outstanding balances that could raise your purchase price by 25% to 30%. You’re better off paying cash or using a debit card to save money and your credit score.
- Start an emergency fund with your next paycheck
Take $20 from your next paycheck and open an interest-bearing savings account that you can use as an emergency fund. If you have more, put it in there. You never know when the unexpected will occur, like an emergency auto repair or sudden job loss. Put aside what you can afford each time you get paid. It’s better to have it and not need it than need it and not have it.
- It’s never too early to plan for retirement
Retirement seems like a distant dream when you’re in your 20s, but the years fly by faster than you think. Start saving for retirement early. Be consistent and contribute the maximum to your retirement accounts if you can. 401(k) accounts and IRAs grow with compounded returns and dividend payments. The more you put in, the higher your income will be in retirement.
The Bottom Line
Some of the best actions to take when you’re young are learning how the credit scoring system works, budgeting your money, and paying cash as your first option. Start an emergency fund to save for the unexpected and make retirement savings contributions early and often.