What are the most relevant financial suggestions for people starting out in life? Along with the wisdom of buying life insurance, people in their 20s should shop around for a first credit card, avoid buying new cars, save for a down payment on a house, and work on their credit scores. Here are details on what to do.
Do: Get life insurance
The last thing most people in their twenties want to think about is life insurance. Ironically, adults in this age group can get incredibly low prices on policies because premiums are based on life expectancy. By locking in a low rate when you’re young, it’s possible to buy huge dollar amounts of protection for a small monthly charge. The easiest way to find great deals is to consult an independent agent.
This is someone who can sell products from dozens of different companies and find suitable options for customers based on your lifetime income expectations and other factors. Do not delay in taking out life insurance. All it takes is a 30 minute consultation to get started.
Do: Apply for a credit card
If you are a student and do not currently have a credit card, seriously consider applying for one. It’s a smart move that can help you establish a score in about six months and make it easier to borrow money later in life. Note that a student credit card also serves as a safety net in case of emergencies, such as being stranded while driving or needing to cover an emergency medical bill. Young adults managing their own finances need to be aware of the different card features, know how to apply, and understand that getting a payment card is an important step.
What is the most efficient way to start? Start by checking out an informative guide that outlines all the pros and cons of top-rated cards for students. Pay attention to things like late fees, interest rates, annual fees, billing cycles, and whether the card issuer reports to one or more of the major credit bureaus. Many cards fall outside the bureaus, and many come with hefty annual fees. It is therefore advantageous to use a guide to find those offering the best deals.
Don’t: Buy a new car
New cars are among the least profitable assets. Their book value immediately decreases the second they leave the showroom floor, and by a substantial amount. After that, each car’s blue book value declines by a set percentage each year, but far from that initial drop that occurs the minute you sign on the dotted line. A much better plan for those who prefer to own newer cars that are still under warranty is to buy one-year and two-year-old models that have low mileage.
Do: Save for a down payment for the first home
Even if you don’t plan to buy a house soon, set up a special savings account where you can regularly deposit money for a down payment. One of the reasons this method works is that the standard amount that lenders ask for as a down payment is 20% of the purchase price of the property. Unless you can avail of special financing arrangements like government-backed loans, it can be next to impossible to raise that much money in a short period of time. By starting to set aside funds now, you gain the benefit of earning compound interest on the balance and getting a substantial head start on buying a home.
Don’t: Ignore your credit scores
It is essential to learn how the credit rating works. First, notice that people don’t just have one note; they have several. This is because each of the three major reporting bureaus compiles a rating for everyone. Then, lenders use this data with various combined versions of the scores, the most famous being FICO. So everyone has at least four numbers to watch, but how can you watch yours? By law, Equifax, TransUnion and Experian must provide a free report once a year to anyone who makes a formal request. You can do this on their websites, and it makes sense to know your ratings on a regular basis. Learn to read jargon-filled reports, being careful to look for errors, which happen more often than you might think.