How Young People Can Financially Prepare for Living on Their Own

Guest Post by: Christopher Haymon

If you’re about to move out of your parent’s house for the first time, this is essentially the beginning of your life as an adult. You’re about to discover the independence that comes with making your own decisions and living life on your terms. You’re also about to discover a new world of financial responsibility.

Needless to say, the whole experience can be an emotional roller-coaster. But it can also be your most exciting and rewarding experience yet. Here are some financial tips to help you start your new chapter off on the right foot:

Explore life insurance.

One of the first steps to consider as you prepare to move out is getting life insurance, because it would help your family out significantly in the event that you unexpectedly passed away. When you look at policy options, it’s important to choose one that fits your current lifestyle and circumstances. For example, a 20-year plan may be perfect for you if you:

1. Are on a tight budget

2. Have a significant amount of debt

3. Pay a 20-year mortgage, and/or

4. Have children

If you die, the right life insurance policy will leave your family some capital or cover funeral costs and medical bills.

Save now.

If you start saving money before you move out, you will not only establish the habit, you can begin your new chapter with a safety net. First things first: Get (and keep) a job if you don’t already have one. If you’re not paying for things like rent, utilities or groceries, this is the perfect time to put away the money you make. Open a savings account, put a majority of your earnings in that account, and keep the rest in your checking account. That way, you’re taking advantage of having low expenses but can still enjoy the occasional entertainment or dinner out.

Learn how to budget.

Another way to prepare for moving out is to learn how to create a budget. Knowing how to create and stick to a budget is an invaluable skill that you will probably use for the rest of your life. Sit down with your parents and/or a financial mentor or advisor and learn the basics of calculating your expenses and income. Even educating yourself on the most basic forms of budgeting can help you avoid getting in over your head in debt by your early twenties.

Each time you accrue a new expense (or new form of income), be sure to update your budget and make any necessary adjustments so that you’re still saving money. For example, once you move out, you will be responsible for a wide range of new living costs. Understanding how to plan for these costs will save you a lot of trouble and keep you in a position to succeed.

Start your credit.

Finally, it can also help to start building your credit history before you move out. For one thing, it can be difficult to get an apartment without a credit history, and if you want to fully embrace the independence of moving out, you may not want to rely on your parents to cosign the lease. Establishing a credit history is also important if you ever want to purchase a car or get approved for a credit card with a higher limit. If you have a poor credit history, it will likely be difficult to buy a home. Most lenders will require that you have a minimum credit score before loan approval.

Get a secured credit card, make a purchase and immediately pay it off. Then, don’t use the card again until you’re completely confident in your financial responsibility. Another way to start building your credit is to make all your federal student loan payments on time.

When you have a financial plan, you can make the most of the independence and responsibility that comes with moving out. Be sure to check out life insurance policies that can create a safety net for your family. Before you move out, start saving most of your paycheck, learn the ins and outs of budgeting, and begin establishing your credit history. You will have a lot to learn along the way but having an understanding of these essential principles will help put you on a good path.

About Chris

Shortly after I graduated college, I made a lot of financial mistakes. Between a swanky apartment, brand new furniture and tech gadgets to fill it, and a student loan bill I wasn’t prepared for, I found myself in over my head pretty quickly. 

I didn’t mean to be reckless with my money. I just had no idea about the basics of healthy finances, including credit, a debt-to-income ratio, and emergency savings.

That was five years ago, and I’ve learned a lot from my experience. My goal is to help prevent others from finding themselves in a similar situation.

 Photo Credit: Pexels

Thrift Savings Plan: Military Retirement Plan

by: Kate Welker, CFP®

In honor of Veteran’s Day we want to take a moment to thank and appreciate the service given by our veteran’s and active military members. We are incredibly grateful for your sacrifice and protection of our freedom. We also like to remember the families of those serving.

In light of the remembrance I thought today I’d discuss one of the benefits offered to our military members and federal government employees: the Thrift Savings Plan, or TSP. Keep in mind this is a brief overview of a system that can be complex.

The best definition of the Thrift Savings Plan comes right from the tsp.gov website. “The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. It was established by Congress in the Federal Employees' Retirement System Act of 1986 and offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans.” (https://www.tsp.gov/PlanParticipation/AboutTheTSP/index.html)

The TSP is similar to other employer sponsored retirement plans where you receive a tax deduction for the contributions you make and you pay tax when you withdraw the money.

The investment options have a bit of an alphabet soup going on, following is the breakdown of the different funds listed in order of least risk to most risk:

• The G Fund - This fund invests in treasury securities backed by the U.S. Government. This means the fund can not lose money, but will generally have a low rate of return. The

• F Fund - This fund is composed of other types of bonds that could be government, corporate, or mortgage backed.

• The C Fund - In this fund you will find stocks of large and medium sized U.S. companies. It is structured to reflect the S&P 500 index. 

• The S Fund - This fund invests in the stocks of small to medium sized companies. 

• The I Fund - Here is where you will find the stocks of International companies. Currently there are stocks of more than 20 developed countries.

• The L Funds - These are the Lifecycle Funds. Each of these funds is tied to a specific year, generally this would be your year of retirement. The investments would contain a blend of all of the above funds and managed to become more conservative as your get closer to retirement. 

If you need an easier way to remember this like I do, here is what I’ve come up:

G for Government.

F for Fixed Income.

C is for Considerable sized Companies. 

S for Small Companies. 

I for International

L for Lifestyle