Financial planning is something that very few young people are actually taught, which means that most of us had to figure it out for ourselves at some point in our 20s. The truth is that it can be hard to think about big life expenses while you’re still a teen, especially if you are going to college or working part-time before starting your career. However, the sooner you become familiar with the costs that will crop up throughout your life, the more prepared you will be to manage your money once you start making a regular income.
It might seem counter-intuitive to start with the expenses that are the furthest away, but it’s good to keep a long-term perspective on your money. This is especially true thanks to the fact that money will multiply when left in the bank, which is exactly why experts recommend you start saving for retirement as early as possible. If you were to set aside a monthly sum for 10 years from the age of 25 and then stop, you would end up with more than if you started at 35 and saved the same amount every month for 30 years.
Thinking long-term can also involve considering less pleasant expenses. At your age, thinking about how to fund your funeral can seem kind of morbid, but it’s worth keeping in mind that funerals can cost anywhere from $7,000 to $9,000. You don’t have to start saving now, but it’s important to be aware that these costs will come up.
There are many types of insurance that you will need to pay for throughout your life, but not all of them are relevant at the moment. Perhaps the first kind of insurance you will need to think about is auto insurance, which is mandatory in most states. Rates tend to be higher for teens because they are inexperienced drivers, and boys tend to have higher premiums than girls. In order to get around these costs, many parents add their teens to their existing policies.
Similarly, when it comes to health insurance, parents can keep their children on their plans until the age of 26. If this is your plan when you go off to college, ensure there are in-network providers near your campus. Another popular option is to join your college’s health plan.
You may have heard all the stories about how young people will never be able to afford to purchase property, but this may be overblown. Outside of major cities, many people continue to buy property in their 20s and 30s. According to MarketWatch, some experts even believe than Gen Z might be better suited to handle the property market than millennials, thanks to their tech knowledge and flexible approach to problems.
If getting on the property ladder is important to you, you’ll be relieved to know that the 20 percent down payment is not a hard-and-fast rule. Most first-time buyers put down about 7 percent, making homeownership a more realistic goal. The average 7 percent down payment on a property here in Maryland, for instance, is $20,000.
If you are going off to college, student loans are likely to be at the forefront of your mind. After all, the average American student leaves college with $37,142 in student debt, a figure that can be terrifying as you start your life as a financially independent adult.
However, according to the experts at NerdWallet, paying off your student loan should not be your top priority during your teens and 20s. Building up an emergency fund, starting your retirement contributions, and paying off credit card debt are all more urgent. This is useful to keep in mind as you start saving money.
Don’t worry if these big sums of money look intimidating to you right now, and don’t obsess too much about perfecting your finances at the moment. Everyone makes some budgeting mistakes in their youth — that’s just how you learn. However, keep the big expenses in mind, prioritize savings, and try to set up a budget that you can stick to.