This segment is sponsored by Forum Credit Union

Successfully living on your own can be easy with the right tools

The first few months of living on your own can be critical for financial success. Mistakes made during this period of time can easily be avoided with a little knowledge. In fact, understanding and practicing just five key concepts helps build a solid foundation for a financially worry-free life.

If you are a parent, there are the 5 nuggets of wisdom you need to give your child entering the workforce.

Top priority for anyone starting out on their own

It is developing a realistic budget, especially for making decisions on how much to spend on living space and perhaps even about purchasing a car.

The reason is that your budget is key to making decisions about several choices you will have to make. It is very important to use realistic amounts for income and base it on net monthly pay, not annual gross income.

People new to the full-time workforce are often tripped up by how much their taxes will increase or how much impact paying for health insurance will actually end up being. Use online tools and budgets that will help you really understand what to include and how much you should actually use for net pay. 

Most difficult move for those starting on their own

The most difficult is always developing a savings habit and actually building several different savings. Mostly we talk about an emergency fund and that is the most important but it is not the only fund to build.

The next most important savings for items that don’t occur every month, this is the extra spending fund for gifts and even holiday spending. It is also important to start building a major purchases fund, the one to use to buy furniture, electronics, and other household goods.

Finally, the last one I suggest and perhaps the second most important is savings for fun, whether it be vacation or other entertainment. After all, we are working to be able to live an enjoyable life, and saving for fun rather than borrowing for fun is financially responsible.

Importance of managing debt and credit score

It is really important to add debt slowly when starting out because too much debt too quickly can really strain a monthly budget. Often times it will take 6 to 12 months before you fully appreciate all of the expenses that one has living on their one.

If you build debt quickly you might have created a very difficult situation where you are living paycheck to paycheck. Related to building debt too quickly is the importance of building your credit score.

Better scores mean access to lower costs loans and sometimes even lower insurance rates. Build your score by adding debt slowly, not fully utilizing all of your credit card limits, and most importantly paying all bills and loans on time.

This method of building your score is the surest method to long-term credit score building that is lasting.

One piece of advice

If I was 22 again and starting out I would have definitely started savings for vocational freedom at a much higher rate on the first day of working. Looking back not prioritizing that part of my financial life had the biggest impact on the financial moves I needed to make in my mid-30s to get back on track with those goals.

The sooner you start the easier it is to meet your goals and move on to other financial concerns such as funding your children’s education or other important objectives that occur later in life.

These five tips are the advice I have given to each of my children as they have entered the workforce so that they can have the best chance to make smart financial decisions.

  • Realistic budget
    • Use net monthly pay
  • Start a saving habit
    • Multiple savings buckets
  • Slowly add debt
    • Be very careful with buy now pay later
  • Build credit score
    • Pay less for loans/insurance
  • Retirement savings
    • Start 1st day of working