We have received a number of emails lately asking what steps can young people take to start getting their financial houses in order from the very beginning. In today’s show, Bo addresses what decisions can be made early on to begin on the right track to financial independence.
The first thing Bo recommends is to build up your cash reserves. You want to make sure you have enough in a rainy-day fund to cover 100% of your health insurance deductible plus about 6 months of expenses. He notes that the first step to becoming financially independent is to truly step away from your caretakers and become individually independent.
The next thing you want to make sure you are doing is maxing out any employer match you may be entitled to. We have said it over and over… this is FREE money! It is an automatic 100% return on your investment. If you aren’t sure how much this will affect your cash flow, track your spending for a few months. It is amazing how much information you can collect about your spending habits if you just keep track of everything you spend.
This is also beneficial because it gives you an idea of how much additional money you have to work with. Once you have begun building up your cash reserves and then maxed out your employer match, you may want to consider contributing to a Roth IRA. For young people, Roths are very attractive because of the amount of time you have for that money to grow tax deferred and then even become tax free in retirement! Remember, as you are beginning to build assets, accumulation matters more than return! If you’ve saved $1,000 dollars and earn 8%, that’s only $80. If you’ve saved $1M and you earn 8%, that’s quite a different story ($80k).
Bo goes on in the show to mention what a young person should be thinking about when it comes to health insurance and even briefly touches on life insurance. If you are young and you haven’t yet begun to establish a credit history, Bo suggests going out and getting a credit card (to use responsibly) and begin establishing a record of credit. This will make big purchases such as homes and automobiles much easier down the road!
To close out the show, Bo addresses some out of the box issues that young people may want to begin thinking about now. As you listen, he touches on:
- Not getting too ahead of yourself
- Improving/adding to your skill sets
- Setting Goals
- Investing in your future health
- Enjoying your youth (you can’t get it back)
You may want to use some of these on-line resources as you begin to implement these steps: