The Most Important Money Decisions in Adulthood

Starting out on your own, things can be scary. You’ve been used to having things taken care of for you. There is food in the house. You have a place to sleep. You have clothes to wear. Maybe you even have a car to drive. Now, suddenly these things have become your responsibility. If you’re like a lot of young adults, you probably haven’t been given a lot of information on how to do things in the “adult world.”

And it’s scary. How will you eat? How will you find a place to live? How will you pay for all of these things? How can you avoid making a bad financial mistake that will leave you homeless or hungry? In this series of articles under the category of “The Basics of Money Management,” we’ll go through some of the basic things you need to know to be a fully functioning, financially fit adult in the modern world.

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First, let me say that things aren’t as difficult as you may think. Relax. Millions of people do what is needed to keep the lights on, keep their cars running, and keep food on-the-table. You may have been told that life is hard and that if you make a mistake it will be devastating. But it’s really not that way. Your financial state is a product of dozens of decisions you make each week and each month. Decisions like getting up and going to work, putting some money into a savings account, and changing the oil in your car. If you make some bad ones, it may set you back, but the impact on your overall life will be minor. You just learn from the mistake, figure out what you’re going to do differently in the future, and move on.

In this first article, we’ll cover the heavy-hitters. These are things that you’ll want to do (or not do) since they can have a larger impact on your life if you don’t. But again, most of the time (really all of the time), you’ll be able to get back on the good track by just changing what you do in the future. Doing things right from the start just makes it a lot easier.

1. Get the education/training required to cover your needs.

Getting a basic education, which means completing high school, will help you get better jobs than you could without one and also teaches important skills like reading, writing, and mathematics that will help you out in life. You are more valuable to an employer if you can read things for yourself and learn things on your own. You’re even more valuable if you can communicate effectively through your writing. Having the basic math skills to figure things out can also come in handy. People with these skills make more money since they’re more valuable to their employees. If you’re planning to start a business and work on your own, these skills become even more important since then you’re the one who will need to read to figure out what you need to do, write to suppliers, clients, and others, and keep track of the books.

Beyond high school, getting specialty skills through college or various training programs can also be very helpful. All college and all training are not valuable, but certain jobs require certain training. If you want to be an engineer and design bridges, you’ll need to take classes on civil engineering. If you want to work on cars professionally, you’ll need to take classes on car repair, especially specialty classes specific to specific brands of cars. Learning things such as advanced writing, logic and critical thinking skills also helps out in certain jobs, so some jobs will expect people to have liberal arts degrees.

Not all education/training is valuable, however. There are some degrees that really aren’t valuable unless you get an advanced degree, and then you may only be able to teach others. Other degrees make you a lot more valuable with just a bachelors degree. Before you decide that a degree is right for you, think about what you would do with that degree, then start to look at the pay for that career field. Take this into account, both in whether you should get that degree at all, and then how much you are willing to pay for it. If you spend $500,000 to get a degree that pays $30,000 per year, it will take you more than 20 to 25 years of working just to get your money back if you take loans into account. If you can get the degree for $30,000, or even $10,000 or $0 through scholarships and financial aid, that will make more sense financially.

2. Have kids at the right time.

A big factor that affects people’s lives is when they have children. Having a family is wonderful, but it is so much better when you’re ready financially. When you haven’t gotten your full education yet, and therefore your earnings and extra time are limited, it is better to not have to worry about childcare and extra mouths to feed. You should take extra precautions to prevent this from happening, choosing things such as abstinence or double birth control. Choosing to only do what is needed to create children with a partner who is the person with whom you would want to have children is also a good plan. Waiting until you are married and have a firm foundation with legal protections is the best move of all, although this has become very rare.

Should something happen anyway despite the best precautions, or because you were not taking enough precautions, realize that there are other options than just choosing a life of poverty or ending the pregnancy. Adoption is always an option and there are many loving families wanting to adopt a newborn. Many will even cover the costs of the pregnancy. If you want to have a connection to your child instead of giving him/her away, think if you have parents, other relatives, or even older friends who might be willing to raise the child as their own or raise the child while you finish earning your degrees and preparing yourself to make a large enough income to support everyone. If you are married, or get married, one of you may also be able to go through school while working while the other is mainly takes care of the child. After the child reaches school age, you should both be able to work to bring in an income. (Before school age it will often cost more in childcare than a second working adult brings in.)

3. Pull together an emergency fund.

An emergency fund is a pool of money that you can use when bad things happen so that you don’t need to go into debt. These are things like paying for a car repair, a doctor bill, or a household repair. A good starter emergency fund is $1000, but after that, you should build the fund up to about $3000 when you’re just starting out and working entry-level jobs. Once you have a home, family, and more substantial bills, you should increase your savings to $10,000 or so since your emergencies will be more expensive than they were when you were a young adult.

This money should be kept where it is easily accessible, in a savings or money market. Once you have a bigger emergency fund, you can also put a portion that you almost never touch into a CD since it will earn more interest. You’ll probably find that you need some cash to handle “the float,” which is when you have a big bill due like an insurance bill before you’ve earned the money through your job. This can be a part of your emergency fund, but be sure to keep enough untouched that you could handle a real emergency. If you do need to dip into your fund, replenish it before you do anything else.

4. Get used to keeping a budget.

A basic budget can be something as simple as an accounting you keep on a sheet of paper each month or something as complex as a cash flow plan on a spreadsheet that you create using the guidance in FIREd by Fifty: How to Create the Cash Flow You Need to Retire Early . The function of a budget is to make sure you put money towards the most important things first and avoid overspending. You list your income at the top of the sheet, then list your expenses at the bottom. If your expenses exceed your income, you figure out what to cut until things at least balance.

The best budgets have more income than expenses, which means you have money left over for saving and investing called “free cash flow.” You first use this extra money to build up your emergency fund. Then you start to invest so that you can create what is called “passive income.” This is money that you receive without needing to work. The more passive income you have, the more financially secure you will be. Once your passive income equals your salary income (which will probably take a couple of decades), you’ve become financially independent (FI) and are no longer dependent on your job to sustain yourself. To learn how to get there, again, check out  FIREd by Fifty: How to Create the Cash Flow You Need to Retire Early, which provides information on how to configure your cash flow to reach FI and lots of great tips on things you can do to increase your free cash flow.

One thing about developing a budget is that it will show you that it really isn’t all that hard to cover your basic expenses and most of your other expenses. This should help set you at ease, realizing that you will have the money to cover the basics: food, clothing, shelter, transportation if you use your income right. You may struggle to cover other things, like meals out and your Netflix subscription when you’re first getting started, but this will get easier with time as you advance in your career and build your income and create passive income through investing. The trick is to make sure you increase your lifestyle slower than you increase your income so that your free cash flow is always growing.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.


    • I guess if it makes you enough money to be worth the effort, go for it. With anything, if you can start small where you don’t lose much if things don’t work out, that’s best. The lower your investment, the better.

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