January 24, 2024
Turning 18 is a significant milestone marking the transition into adulthood. Being a young adult carries new responsibilities, privileges and challenges—including legal and financial ones. As you are preparing to head off to college, taking a gap year or jumping straight into adulting, now is a great time to begin thinking about and planning for your financial future. In this article, we’ll highlight four financial tips to help with that transition.
Before opening a bank account, let’s have a refresher on what checking and saving accounts are and their purpose:
By opening these two foundational accounts, you will begin to establish your financial history, which is important for future financial endeavors like getting a loan or a credit card. You will also foster good budgeting habits and build an emergency savings fund.
Now you can determine what type of banking best suits your needs. According to a recent Forbes Advisor article, “Online banks are better than traditional banks when it comes to minimizing fees and securing the most competitive rates. These banks also tend to offer superior websites and mobile apps with more features.” The article also noted that when it comes to finding a full range of financial services all in one place, traditional banks tend to win out. Keep in mind, “choosing a bank is rarely a one-off process,” notes this Investopedia article. They remind us that the best bank for you will ultimately change throughout your lifetime as your financial goals evolve.
When choosing a bank or credit union, consider the following:
Once you find a bank or credit union that offers the services you need you can open your own account. If you currently have a minor account, consider converting the account to an individual account.
If used responsibly, a credit card is a great tool to help establish a credit history early on, which can help build a strong credit score over time. A good credit score will make it easier to get approved for loans (mortgage, auto and personal), qualify for lower interest rates on loans and credit cards, and qualify for higher credit limits on your credit cards.
Here are some healthy credit card habits:
We recommend running your credit report to confirm there aren’t any accounts or charges opened under your name and social security number without your knowledge as that may be a sign of identity theft. You can obtain a free credit report from each of the three major credit bureaus (Equifax, Experian and TransUnion) once a year through AnnualCreditReport.com. A best practice is to check your credit report annually to monitor for any changes or issues. Some banks offer this as a free service as well.
To learn more about how credit work and how a score is determined, check out our Making It On Your Own: Credit article.
Investing can be an excellent way to build long-term wealth. The earlier you start, the more time your investments will have to grow and compound, which is when interest is earned on interest. Before investing, consider the following first:
Once you are ready to begin investing, consider opening a brokerage investment account for general financial goals such as buying a house and a Roth IRA (if you are currently working) to start saving for retirement. It’s generally a good idea to start small and diversify your portfolio. Ever heard the phrase, “Don’t put all your eggs in one basket?” It’s the same with investments. Diversify your portfolio amongst the different asset classes such as stocks, bonds, real estate, etc., so your exposure to any asset class is limited. This strategy can help minimize your portfolio’s risk and volatility.
For more detailed information on investing, check out our Making It On Your Own: Investing article.
As you find yourself taking on more responsibility and decision making for your future financial planning, please know the Aspiriant wealth management team is here to make your transition more manageable. Never be afraid to ask questions, especially when it has to do with something as important as developing a solid financial foundation. Talking about money, especially starting the conversations early, can help you become more comfortable with the topic instead of treating it as taboo. If your family has an established relationship with an Aspiriant client service team, let them know you would like to schedule a call. You can also reach our team a few different ways. Remember, ask a lot of questions now and reap the rewards of your knowledge later in life.
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