A milestone! You reached 18 and now you’re ready to take on the world as an adult. Whether you’re going to college or entering the workforce, you’ll have a brave new world of opportunities. To start off on solid financial ground, make sure you’re ready with these five banking to-dos.
Get savvy. Perhaps the most important thing you’ll need as you enter this new chapter is your basic savviness and awareness. This means being responsible about your income, expenses and savings. In these days of instant gratification and fast-growing debt – often from student loans – being knowledgeable about your finances is imperative. Now is the perfect time to start a lifestyle of saving, investing, limiting debt, and establishing good credit. Making good choices will create a solid foundation for the next four to-do items.
Start banking. If you haven’t done so already, open a quality checking account and savings account. For checking, make sure you understand the fees associated with the account. Many banks charge ATM fees for using ATMS that are not part of your bank’s network. There also may be account minimum fees if your balance falls below a certain amount. In addition, despite your best intentions, you may overdraw your account. Your bank may charge you for overdraft fees if that happens, or they may charge you overdraft protection to make sure it doesn’t happen. Either way, it can be an added expense.
Another thing to set up right away is a savings account. Although there are many savings vehicles and investments available, a basic savings account is an easy and effective way to get you in the habit of saving when you’re just starting out. Being able to transfer funds from checking will allow you to set up an automatic savings mechanism. For example, you can arrange to have $10 transferred from checking to savings every month to start building up that account.
Embrace technology. This is easy terrain for young adults who were raised in a digital age. But as banking becomes increasingly high-tech, mobile apps and digital services will be even more prominent. Stay ahead of the curve by choosing a bank that’s prepared to evolve with the times. Mobile banking offers convenient account access, check depositing, funds transfers, and bill pay. There are also apps that helps users track spending habits and manage their money, know if they’ve been hacked or a victim of fraud, and instantly look up their credit scores.
Establish credit. While acquiring debt at a young age sounds like a bad thing, establishing credit history is imperative to getting a loan, a credit card, or even an apartment. Many lenders will look for your FICO score to determine how likely you are to repay them if they were to give you a loan. To have a FICO score, you need at least one account open six months or longer and at least one creditor who’s reported your payment to a credit bureau within the last six months.
You can establish credit by becoming an authorized user on someone else’s credit card or by getting a co-signer on your own credit card. This person will be responsible for the amount owed if you’re unable to make a payment. You can also apply for a secured credit card. This can be used like any credit card, but it’s backed by cash you’ve already put in an account. How much you can spend on the credit card is the same as the amount you deposited. It’s important to pick a card with no annual fee and that reports to all the main credit bureaus.
Plan for retirement. Finally, while you may just be entering the workforce, it’s not too early think about retirement. In addition to your savings account, you can look into more aggressive savings mechanisms like a 401(k) or Roth IRA. Employers often offer a 401(k) with matching funds. The amount you choose is automatically withheld from your paycheck – before taxes – and invested in a special fund. A Roth IRA lets you invest funds after taxes, but allows you to withdraw money down the road tax-free. If you’re in a position to invest more, talk with a financial professional. Also, don’t assume you’re too young for other investment opportunities like real estate, the stock market, and business ideas.
Banking is a fact of life, and the sooner you start a responsible and savvy financial lifestyle, the better you’ll be in the long run. For more information about the products and services that can make adulting easier, contact us.
