You should be feeling your new independence and facing new challenges growing up….
As a young adult, you probably have some bills and this is the time when you should start setting a budget and establishing credit. Setting a budget is a guide to stay within your means of living (your income after taxes) and set limits on how much you should spend on your expenses. This is also a time when retailers (department stores) will try to offer you one of their credit cards. Typical sales pitch- sign up today and save 40% off or get a quick approval and buy more. Do not get a credit card until you have learned and mastered staying in your budget and paying bills on time.
Set a budget
Typically expenses are: Rent/Mortgage, Car/Insurance, and all other bills (cell phone, electric/gas, etc.) and expenses (clothes, hair, entertainment, eating out, etc.).
There is a lot information regarding what percent you should spend in each category so decide your preference but setting a budget is the key. When I started to budget, I heard of the 10, 20, 30, 40 rule. 10% Save, 20% Car, 30% Mortgage/Rent, 40% Other (Everything else). Over the years and seasons in my life, I have changed these percentages. Example: When I paid off my car (20% of my income), I increased my savings (from 10% to 25%, up 15%) as my car insurance was only about 5% of my income (from 20% to 5%, down 15%). Play with percentages as you wish, but always add up to 100% to set your budget. Here are some examples below based on $2,100 income a month.
Example A: Living alone or with roommate(s), has a car, bills and other expenses
Example B: Pays no rent, has a car, bills and other expenses
Example C: Pays no rent, does not have a car but has bills and other expenses
|Example A||Budget||$2,100 – Monthly income|
Credit is needed if you want to finance a car, lease an apartment, buy a house and even get a cell phone account with major mobile carriers (AT&T, Sprint, T-Mobile, etc.). It is important to establish credit and prove you can manage it. This will allow to get the best interest rates for loans which will save you money on interest. Credit cards are not extra money to expand your budget, if not managed effectively it will cost you in interest payments, fees and leave you with a bad credit score. I manage my credit card kind of like a checking account. If I write a check or use my debit card, I keep track of what I spend and subtract that from my beginning balance in a journal. If I use my credit card, I pay the balance about every two weeks to stay on top of things. Yes, you can make multiple payments in a month.
Start with a small credit limit with your favorite departments store, gas stations, or grocery stores. These limits will be between $300-800 based on many factors like income, length at employers and length at residence.
- The best way to manage your credit account(s) is to pay the total amount and have a zero balance before the due date.
- Benefits of paying your balance off, some credits cards you will avoid interest fees and it will improve your credit cards.
Tip: To improve your credit, pay your balance any time you spend more than 10% of your credit limit. ($Credit card limit X .10) Example: $500 credit limit ($500 x .10 = $50) to pay towards your credit card bill.