With age comes respon­si­bil­i­ty, so if you’re a young adult in your 20s or 30s, chances are you’ve been intro­duced to the real­i­ties of adult­hood. While you’re excit­ed by all the oppor­tu­ni­ties life has to offer, you’re also aware of your emerg­ing finan­cial respon­si­bil­i­ty. In the finan­cial realm, the mil­len­ni­al gen­er­a­tion (young adults born between 1981 and 1997) faces a unique set of chal­lenges, includ­ing a com­pet­i­tive job mar­ket and sig­nif­i­cant stu­dent loan debt that can make it dif­fi­cult to obtain finan­cial sta­bil­i­ty.

Poor mon­ey man­age­ment can lead to debt, stress, and depen­den­cy on oth­ers. For­tu­nate­ly, good mon­ey man­age­ment skills can make it eas­i­er for you to accom­plish your per­son­al goals. Become famil­iar with the basics of plan­ning now, and your future self will thank you for being respon­si­ble.

Figure out your financial goals

Set­ting goals is an impor­tant part of life, par­tic­u­lar­ly when it comes to your finances. Over time, your goals will prob­a­bly change, which will like­ly require you to make some adjust­ments. Start by ask­ing your­self the fol­low­ing ques­tions:

  • What are my short-term goals (e.g., new car, vaca­tion)?
  • What are my inter­me­di­ate-term goals (e.g., buy­ing a home)?
  • What are my long-term goals (e.g., sav­ing for your child’s col­lege edu­ca­tion, retire­ment)?
  • How impor­tant is it for me to achieve each goal?
  • How much will I need to save for each goal?

Once you have a clear pic­ture of your goals, you can estab­lish a bud­get that will help you tar­get them.

Build a budget

A bud­get helps you stay on track with your finances. There are sev­er­al steps you’ll need to take to estab­lish a bud­get. Start by iden­ti­fy­ing your cur­rent month­ly income and expens­es. This is eas­i­er than it sounds: Sim­ply add up all of your sources of income. Do the same thing with your expens­es, mak­ing sure to include dis­cre­tionary expens­es (e.g., enter­tain­ment, trav­el, hob­bies) as well as fixed expens­es (e.g., hous­ing, food, util­i­ties, trans­porta­tion).

Com­pare the totals. Are you spend­ing more than you earn? This means you’ll need to make some adjust­ments to get back on track. Look at your dis­cre­tionary expens­es to iden­ti­fy where you can scale back your spend­ing. It might take some time and self-dis­ci­pline to get your bud­get where it needs to be, but you’ll devel­op healthy finan­cial habits along the way.

On the oth­er hand, you may dis­cov­er that you have extra mon­ey that you can put toward sav­ings. Pay your­self first by adding to your retire­ment account or emer­gency fund. Build­ing up your sav­ings using extra income can help ensure that you accom­plish your finan­cial goals over the long term.

Establish an emergency fund

It’s an unpleas­ant thought, but a finan­cial cri­sis could strike when you least expect it, so you’ll want to be pre­pared. Pro­tect your­self by set­ting up a cash reserve so you have funds avail­able in the event you’re con­front­ed with an unex­pect­ed expense. Oth­er­wise you may need to use mon­ey that you have ear­marked for anoth­er purpose–such as a down pay­ment on a home–or go into debt.

You may be famil­iar with advice that you should have three to six months’ worth of liv­ing expens­es in your cash reserve. In real­i­ty, though, the amount you should save depends on your par­tic­u­lar cir­cum­stances. Con­sid­er fac­tors like job secu­ri­ty, health, income, and debts owed when decid­ing how much mon­ey should be in your cash reserve.

A good way to accu­mu­late emer­gency funds is to ear­mark a per­cent­age of your pay­check each pay peri­od. When you reach your goal, don’t stop adding money–the more you have saved, the bet­ter off you’ll be.

Review your cash reserve either annu­al­ly or when your finan­cial sit­u­a­tion changes. Major mile­stones like a new baby or home­own­er­ship will like­ly require some adjust­ments.

Be careful with credit cards

Cred­it cards can be use­ful in help­ing you mon­i­tor how much you spend, but they can also lead you to spend more than you can afford. Before accept­ing a cred­it card offer, eval­u­ate it care­ful­ly by doing the fol­low­ing:

  • Read the terms and con­di­tions close­ly
  • Know what the inter­est rate is and how it is cal­cu­lat­ed
  • Under­stand hid­den fees such as late-pay­ment charges and over-lim­it fees
  • Look for rewards and/or incen­tive pro­grams that will be most ben­e­fi­cial to you

Con­tact the cred­it card issuer if you have ques­tions about the lan­guage used in an offer. And if you are try­ing to decide between two or more cred­it card offers, be sure to eval­u­ate them to deter­mine which will work best for you.

Bear in mind that your cred­it card use affects your cred­it score. Avoid over­spend­ing by set­ting a bal­ance that you’re able to pay off ful­ly each month. That way, you can safe­ly build cred­it while being finan­cial­ly respon­si­ble. Take into account that missed pay­ments of any sort can cause your cred­it score to suf­fer. In turn, this could make it more dif­fi­cult and expen­sive to bor­row mon­ey lat­er.

Deal with your existing debt

At this stage in your life, you’re prob­a­bly deal­ing with debt and won­der­ing how to man­age it. A 2015 Pew Research study revealed that 86% of mil­len­ni­als have debt. (Source: “The Com­plex Sto­ry of Amer­i­can Debt,” July 2015) In par­tic­u­lar, you might be con­cerned about how to pay off your stu­dent loan debt.

For­tu­nate­ly, there are many repay­ment plans that make it eas­i­er to pay off stu­dent loans. Check to see whether you qual­i­fy for income-sen­si­tive repay­ment options or Income-Based Repay­ment. Even if you’re not eli­gi­ble, you may be able to refi­nance or con­sol­i­date your loans to make the repay­ment sched­ule eas­i­er on your bud­get. Explore all your options to find out what works best for you.

Beware of new borrowing

You’re doing your best to pay off your exist­ing debt, but you might find that you need to bor­row more (for exam­ple, for grad­u­ate school or a car). Think care­ful­ly before you bor­row. Ask your­self the fol­low­ing ques­tions before you do:

  • Is this pur­chase nec­es­sary?
  • Have you com­par­i­son-shopped to make sure you’re get­ting the best pos­si­ble deal?
  • How much will this loan or line of cred­it cost over time?
  • Can you afford to add anoth­er month­ly pay­ment to your bud­get?
  • Will the inter­est rate change if you miss a pay­ment?
  • Are your per­son­al finances in good shape at this time, or should you wait to bor­row until you’ve paid off pre-exist­ing debt?

Weigh your pre-exist­ing debt against your need to bor­row more and deter­mine whether this is a wise deci­sion at this par­tic­u­lar point in your life.

Take advantage of technology

Access to tech­nol­o­gy at a young age is one major advan­tage that ben­e­fits mil­len­ni­als, com­pared with their par­ents and grand­par­ents when they were start­ing out. These days, there’s vir­tu­al­ly an app or a pro­gram for every­thing, and that includes finan­cial basics. Do your home­work and find out which ones could be the most help­ful to you. Do you need alerts to remind you to pay bills on time? Do you need help orga­niz­ing your finances? Are you look­ing for a pro­gram that allows you to exam­ine your bank, cred­it card, invest­ment, and loan account activ­i­ties all at once?

Research­ing dif­fer­ent pro­grams can also help with num­ber crunch­ing. Many finan­cial apps offer built-in cal­cu­la­tors that sim­pli­fy tasks that may seem over­whelm­ing, such as break­ing down a month­ly bud­get or fig­ur­ing out a loan repay­ment plan. Exper­i­ment with what you find, and you’ll most like­ly devel­op skills and insight that you can use as a start­ing point for future plan­ning.

Although apps are one way to get start­ed, con­sid­er work­ing with a finan­cial pro­fes­sion­al for a more per­son­al­ized strat­e­gy.

Con­tent pro­vid­ed by:  Fore­field Adviosrs

April 2017