As a young adult, your goal may be to become more independent and self-sufficient. You no longer want to depend on others for your financial wellbeing, but sometimes it’s hard to establish that independence right away.
Just as you need work experience to get your first job, you may be required to demonstrate financial responsibility before being entrusted with a checking account or extended credit. That’s why we’ve created a package of products and services for those just starting out to ease the transition, helping you take that first step towards financial independence.
Access the educational resources and tools to learn about budgeting, building credit, and healthy financial habits.
Your credit score can help you qualify for loans and credit cards. Plus, it determines the interest rates you pay on balances which impacts the total cost of financing. A good credit score can help you secure a job offer, apartment lease, and lower insurance rates and utility deposits. To establish your credit history, consider the following action steps:
- Open a secured credit card or loan to start building a credit history
- Use your secured credit card to pay one recurring bill and pay it off every month
- Keep the balance low on your secured credit card or loan (under 30% of credit limit)
- Avoid applying for additional credit accounts
- Be aware of your account balances, payment dates, and interest rates via Mobile Banking
A credit score indicates your credit worthiness or the degree of risk involved in lending you money. FICO, the scoring agency used in about 90% of lending decisions, uses a range from 300 to 850. Think of it as a GPA for your credit with higher scores earning you better access and rates. These are the factors that go into calculating a FICO score: 35% payment history, 30% amounts owed, 15% length of credit history, 10% credit mix, 10% new credit. Follow these tips to continually improve your credit score:
- Pay your bills on time…every time!
- Pay off debt and keep balances low on credit cards and other revolving credit
- Apply for and open new credit accounts only as needed
- Don’t close unused credit card accounts
- Consolidate high-interest debt to a single account to lower interest payments and shorten terms
- Take proactive steps to create a budget, control spending, and avoid taking on any additional debt – explore Money Management
Once you have established credit, it is important to take proactive steps to protect it. Get in the habit of reviewing your credit report and remain vigilant against fraud.
- Regularly request and review your free credit report at www.annualcreditreport.com
- Dispute any errors or inaccuracies on your credit report
- Monitor your credit score from free services to be certain it is where you want it to be
- Consider freezing your credit with all 3 credit bureaus at www.annualcreditreport.com
- Avoid oversharing personal information online or via social media
Budgeting is a process for tracking and planning the inflow and outflow of money each month. To be successful, you will need to simultaneously pay your bills, meet your debt obligations, and contribute to your saving goals. You can break the budgeting process down into three action steps
- Analyze your current situation (track your spending) and identify trends
- Ideally, look back at least 30 days to see where your money has gone
- Pull data from your account statements, year-end spending reports, or apps
- Look for trends (like overspending on key days or on certain items) that signal opportunities for behavior change
- Determine your expense categories and monthly spending limits
- Cover the essentials first (housing, food, transportation, insurance, etc.)
- Pay yourself first (allocating savings off the top rather than from leftovers)
- Determine how debt repayment factors into your budget (what are your interest rates, debt balances, and monthly payments?)
- Develop your plan and reassess it monthly, making tweaks as needed
- Realize that some short-term sacrifice may be necessary for long-term gain (could you seek a side gig to increase income or reduce spending?)
- Look at balancing your wants and needs, making tradeoffs as required (hold onto the items most important to you and let go of the rest
- Schedule a “financial health” day each month to focus on your finances
There is no one-size-fits-all when it comes to budgeting. Your best budget strategy is the one that you can stick to long term. Here are a few suggestions to consider:
- Cash Budget (helps monitor spending)
- Weekly cash allotment to cover your variable expenses with 1 weekly ATM withdrawal (you determine the $ amount)
- Use envelope system (provides guardrails) for categorizing variable expenses (like groceries, gas, eating out, entertainment, etc.) where you have choices
- Zero Sum Budget (creates structure and focus)
- Net income minus fixed and variable expenses must net out at $0 each month
- Every dollar has a purpose and is spent/assigned to a category (no leftover $)
- 50/30/20 Budget (takes a balanced approach)
- 50% to needs, 30% to wants, 20% to savings and debt repayment
- If you come up short, you may need to reallocate funds from the “wants” category (temporary tradeoffs to avoid overspending)
- Goals-Based Budget (keeps financial goals top of mind)
- Allocate savings to different “buckets” (seasonal expenses, emergency fund, home, retirement, college, vacation, etc.)
- Set up separate accounts and automatic transfers for each bucket (leverage Allegacy’s Club Savings)
Once you make a commitment to budgeting, see it through with a comprehensive plan to achieve your financial goals
- Ask yourself some key questions before buying: Do I need it? Can I afford it? How long will it take to earn the money to pay for it?
- Build in some accountability from friends, family, roommates
- Take baby steps, breaking down each goal into achievable action steps
- Make it a habit by setting up automatic bill pay and account reminders in Mobile Banking
- Embrace delayed gratification by engaging in a spending fast
- Reassess your budget every quarter to ensure it still fits your needs
- Keep a positive attitude and know that nothing is permanent
- Be proactive with your financial health by building emergency savings to weather periods of uncertainty
- Explore Enrich to access interactive content on budgeting, paying for college, building credit and more
Get one-on-one advice, free of charge to help you start off on the right foot.
Join us for an upcoming, virtual workshop to learn and practice new skills.