As recent graduates and young adults are growing in their financial independence, the saying holds true that with more money comes more responsibility. As more numbers come in the form of income, loans, credits, and debt, knowing how to manage it all can be a bit overwhelming. If you are unsure where to begin and what affects your finances, here are six important personal finance tips for millennials.
- Know your credit score
Your credit score is a key part of your financial journey. Your credit score is a number between 300–850 that depicts your creditworthiness. Generally, a credit score of about 700 is considered good. If it’s not above 700, there are multiple ways to increase and improve your credit score. Check out our website for your free credit report.
- Build a budget
Making a plan, knowing your net income, tracking your spending, and setting your goals are all part of knowing how to build a budget, reach your financial goals, and keep track of your money. There are more traditional options like creating an excel sheet or saving and organizing all your receipts. There are also lots of helpful apps like Mint, EveryDollar, or Personal Capital. Your personal bank may even have a budgeting option within its own app to help you budget your money.
- Check your debt-to-income ratio
To calculate your debt-to-income ratio, add up your total recurring monthly obligations (such as student loans, auto loans, rent, credit card payments, etc. ), and divide by your gross monthly income (the amount you earn each month before taxes and deductions). Having a low debt-to-income ratio is important for getting other loans or lines of credit and indicates to lenders that you are in a responsible position to manage payments you owe for future things like mortgages,
- Build an emergency fund
Especially with the state of the world we are navigating through today, it’s been a clear reminder how important it is to have an emergency fund. A general rule of thumb is having a 6 month savings that covers living expenses in your emergency fund. The best place to keep your emergency fund is in a high yield savings account.
- Open a ROTH IRA
A Roth IRA is a special retirement account where you pay taxes on money going into your account, and then all future withdrawals are tax-free i.e.These differ from traditional IRAs as you deduct contributions now and pay taxes on withdrawals later in traditional IRAS, whereas with Roth IRAs that are funded now with after-tax dollars and withdrawals later are tax-free.
- Know what makes you happy
At the end of the day, not everyone needs the same number to feel financially stable and it’s important to balance a number with your passions and happiness. Understanding the kind of life you want and what numbers reflect that may help prioritize where you need to save money.