Seven financial steps to take once you're on your own

Going from college to first job and apartment can be a huge transition. These steps will help any new grad take care of immediate responsibilities, while still keeping an eye on the future.

Andy Nelson/The Christian Science Monitor/File
Cristin Schufield waves to a friend as she waits to receive her diploma from Cedar Grove High School in Cedar Grove, New Jersey, in the ceremony June 24, 2002 in Cedar Grove, New Jersey. New college grads can use these steps to make sure they are setting themselves up right.

You’ve got your first real job and your own apartment. Now it’s time to ensure your financial well-being.

This means taking care of your immediate obligations, planning for future wants and needs, and ensuring that you’re set to handle the unexpected. If you have a car, it means buying your own car insurance. If you have a partner or dependents, it means buying life insurance.

Here’s how to turn your big personal finance priorities into manageable goals.

1. Create a budget

Sticking to a budget can enable you to meet your financial goals while still paying your rent, buying groceries and having some fun. Don’t have one yet? Here’s what you need to do to set up a budget:

  1. Determine the amount you earn each month, including your take-home pay and other sources of income.
  2. Figure out how much you spend each month, including your fixed costs — such as rent, utilities, car payments and student loan payments — and an estimate of your variable expenses, such as groceries, health care copays, shopping and entertainment. Use receipts or your checking account statement if you’re unsure of specific amounts. 
  3. Compare the amount you earn to the amount you spend. If you have enough left over to put money aside for goals — such as building up your financial cushion, paying off debts or saving for retirement — the budget you have might be fine. If not, you’ll need to cut back on your discretionary spending. 
  4. Rewrite your budget, if necessary, allocating at least some money for savings and long-term goals.
  5. Revisit your budget at least once a month to ensure that you’re staying on track. If your financial circumstances have changed, you should also update your expenses, financial goals or available income.

These days, technology makes budgeting easier than ever. If you’d like some help, check out the best budgeting apps for young professionals.

2. Save for retirement

You may have just adjusted to working all week, but it’s already time to think about life after leaving the workforce. NerdWallet recently found that new grads won’t be able to retire until age 75, assuming they start putting away 6% of their income at age 23 and earn a 6% return. Put off saving and you’ll be working longer. Bump up your savings rate to 10%, on the other hand, and you should be able to retire five years earlier. At the very least, save enough to receive the maximum employer match on your company’s 401(k).

Saving early is critical. It gives you more time to benefit from compound interest, the interest you earn on previous interest gains. 

If you think you can’t afford to save now, remember that it won’t get easier once you have a mortgage and children. It’s best to get into the habit right away.

3. Inflate a financial cushion

You never know when you might lose your job, get sick or injured, or experience another emergency. That’s why you should set money aside to keep you afloat if need be.

Experts recommend having six months’ worth of living expenses in reserve. That’s a big ask for many young people, but if you can put even a little bit of each paycheck aside for emergencies, you’ll be making progress.

4. Plan for your future

Do you dream of buying a home, throwing a splashy wedding, or stepping out of your career for a while to care for a baby? All these things cost money. Now is the time to think about your long-term goals and start saving up.

5. Buy renters insurance

If you’re like most young adults, your first home is an apartment. Though you’re not always required to have renters insurance, the way new homeowners usually need to buy homeowners insurance, it’s often a good idea. A policy will pay to replace your possessions if they’re stolen or damaged by fire or another disaster.

The average cost of renters insurance is $15 to $30 a month, according to the National Association of Insurance Commissioners. 

Once you buy a policy, create an inventory of your possessions, with photos, serial numbers, model numbers, receipts, dates of purchase and prices. This will be crucial in proving exactly what you lost if your belongings are damaged or stolen. Keep a copy in a safe place away from home, such as a safe deposit box.

6. Shop around for car insurance

Once you no longer live with your parents, you (and your car) can’t be on their car insurance policy. And even if your parents like their insurer, it’s not smart to buy from the same company without comparing prices for yourself.

Auto insurance companies base your rate on factors including your driving record, age, location, gender, car model and, where it’s legal, your credit history. But each company weights these factors differently, meaning that you might pay a much higher premium at one insurer than another. 

Having your own policy also lets you tailor your auto insurance coverage to your situation. Your parents may have higher liability limits than you need, for instance, because they have more assets to protect from lawsuits if they cause a car accident. In addition, if you have an old car that’s not worth much, it may not make sense to buy comprehensive and collision insurance, which pays for damage to your vehicle, or theft, but only up to the vehicle’s value.

7. Think about the end

Estate planning may seem premature, but getting a jump on the paperwork is always a smart move. You should:

  1. Designate beneficiaries for your employer-provided retirement plans and life insurance coverage. Consider buying additional life insurance if you have a partner or dependents.
  2. Draft a will if you have any assets that you’d want to go to particular people.
  3. Designate a power of attorney to handle your affairs if you become incapacitated.
  4. Write a living will that spells out the medical measures you’d want taken (or not taken) if you were seriously injured or ill.

As you age, you’ll probably experience more financial milestones, including buying a home and saving for your children’s college education. But these first steps will help your journey start off smoothly.

This article first appeared at NerdWallet.

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