If you’re like most young adults, your financial future may not be the biggest priority on your mind – but it should be. The decisions that you make today, in your twenties, can have a long lasting effect on the rest of your life. Poor credit decisions early on can take years or decades to repair. If you want to set yourself up for financial success, here are seven smart decisions you can make for your financial health before you turn thirty.
1. Get Credit Cards
Today, people use credit cards for nearly all types of purchases. With the increasing popularity of online retailers, these financial tools are a great added layer of protection from online credit card thieves. While they are great for their convenience factor, credit cards also allow you to begin building your credit early on. Be obtaining and making regular payments on credit cards, you are setting yourself up to get more optimal rates later on when you apply for home, auto or business loans.
2. But Don’t Abuse Them
Just because you have a credit card, however, does not mean that you should overextend yourself financially. Many people, especially young adults, fall into the trap of unnecessary spending when given a substantial credit limit. The more you use your card responsibly, the higher limit you will likely receive from your card issuer. Just because you have a $5,000 line of credit does not mean that you should spend the entire amount.
3. Pay Down Your Highest Interest Loans First
Many times, young adults face a number of different loans that they need to repay. Student loans, credit card debt and automobile loans are just a few of the most common debt obligations that people in their twenties are presented with. When paying down your debt, focus on adding extra each month to the loans that have the highest interest rates. This is often credit card debt, but each individual case is going to be different.
4. Protect Your Identity
Identity theft is running rampant across the internet, and with the amount of sensitive data that is shared on a daily basis, it is easy to understand how. Be smart with your data when browsing and shopping online. Ensure that you have a secure connection with a reputable site before entering anything such as your credit card information or social security number. Identity thieves often trade and sell their stolen information, so one simple mistake could put you at the mercy of an entire internet of criminals.
5. Create A Financial Safety Net
Instead of saving for a rainy day, most consumers with credit cards consider these small pieces of plastic to be their financial safety net. In an emergency, these often high-interest credit cards can be used, but should not be your primary backup plan. Set a specific amount and save each month until you have this much in reserve. Most experts recommend between two and three months’ worth of expenses. Relying on credit cards in an emergency can leave you paying high amounts of interest month after month until the debt is paid down.
6. Carefully Plan Before Making Large Purchases
If you are considering making a large purchase such as a vehicle, do your homework first. The biggest mistake that many uninformed car buyers make is that they try to obtain financing at the dealership. This puts you in a much worse negotiating position when it comes to your purchase. Secure financing for your auto loan ahead of time, so that when you walk onto the car lot you can focus exclusively on getting the best price for your new vehicle.
7. Start Saving For The Future
It is never too early to start saving. Most young adults feel like they have plenty of time to get their finances in line. While they may be true, the principle of compounding interest makes starting early a wise decision. Small investments can add up very quickly when given time, and starting your retirement savings when you’re 25 can oftentimes more than double your retirement nest egg compared to those who start a decade later.
By following these seven smart tips, you can position yourself for financial success early on. If you exercise caution early on when it comes to using available credit and loans, you can prevent yourself from digging a fiscal pit that can be quite difficult to climb out of. Though the strategic use of credit combined with responsible saving early on, you can avoid the financial problems that many young adults are plagued with each day.