Do you ever wish you could just take some time off this adulting business? Check out from all responsibilities, have someone else worry about what you eat whilst ensuring that it’s healthy, decide what you wear and plan your schedule? You are not alone!
There are days we all long for our ‘no responsibility’ childhood days. However, the thing about adulthood is that you can’t embrace the freedom it gives without taking on the responsibility that comes with it. Managing money is one of such responsibility.
Every adult needs to master the art of managing money given how important it is. And it is crucial to cultivate good habits early on. It is also never too late to start. If you do everything on this personal finance checklist, you are giving yourself a fighting chance to be financially successful. Here it goes;
Table of Contents
Plan
It is important to set some clear goals for the future. Goals and plans are a driving force for a lot of decisions we make. Do you have clear goals? If not have a think and write down some financial goals. For example;
- Make xx amount of money by the time I turn 30,40,50 …
- Save enough to move out by xxx time
- Buy a property
- Buy more properties
Dream about what you want your future to be, convert the dream (vision) into a mission statement, list the steps or milestones needed to accomplish the mission, break them down into small actionable steps and decide on how to hold yourself accountable.
Be intentional about what you want your life to look like. Don’t just allow life to happen to you, make life happen.
I know this is often easier said than done but you can start by deciding to be successful and take steps towards it. You don’t have to figure everything out right away. Take small actionable steps towards your goals daily.
Warning !!
This does not mean you can control everything in your life. So be ready for challenges, detours and be flexible enough to redesign your plan. The destination/mission remains the same but the routes can vary.
Become financial literate
Make it a mission to learn more about money, budgeting, investing and pensions. It will prepare you for most of the next items on the personal finance checklist. But hey! you are ticking this item on the list by reading this blog post and our other posts.
How you make and manage money could impact positively or negatively on relationships, quality of life and achieving time freedom. Regardless of what your career, interests and passions are, it is important to understand personal finance basics. This is not one thing you can put in the “not my strong point” category.
I am not saying you have to be an expert on everything but you can seek to understand the basics about your personal finance and how to manage it in the best way.
Learn how to budget and track your spending
I think most people practise budgeting. Even people who scoff at the word budget. However, most of the time there is no method (more mental notes) or consistency to it. Budgeting consistently is one item on your adulting personal finance checklist that you have to check.
A budget helps you to plan by allocating your income to the important stuff. It is hard to save and invest consistently without a budget. If you get rattled by the word budget then call it a spending plan. And if spreadsheets are not your thing, there are several other methods, just pick one that suits you.
We have a few budget resources and they are free!. Download our budgets e-book here and a free budget spreadsheet below.
Build an emergency fund
Top on the adulting personal finance checklist is an emergency fund. This cannot be overemphasised. An emergency fund has been a saving grace for me a few times. An emergency fund is 3-6 months of your monthly expenditure in an accessible account. It is not meant for known expenses like car insurance or travel as those should be in your budget.
My main use of an emergency fund has been to cover loss of income from gaps in employment. But it could also be for an unexpected home cost or health costs. It is a cover for unexpected expenditure that could occur but you are not insured for.
regular saving
Get into a habit of saving consistently.
I think saving is not easy for everyone. Some people are natural spenders and others natural savers. If you find it hard to save, you will need to make a conscious effort to make it a habit. Start with a plan and determine what your motivation or ‘why’ is then set a savings goal. You need to budget consistently to save consistently. Don’t stop at writing a budget. Track your spending, avoid overspending and set your budgeted savings aside by transferring it to a separate account or set up a standing order.
It is such a great feeling to see your savings grow and it will get to the point that even when you’ve saved to spend it on something you will hesitate because saving will be your new habit.
Everything requires balance so remember to incorporate fun into your budget and celebrate when you can.
Start investing in the stock market
Investing can seem like a complex and risky game only reserved for highly sophisticated people but everyone can take part. The easiest way to begin is to invest in index funds.
Remember, investment in the stock market is risky and you can lose your capital.
However, remember risk and reward go hand in hand. If you invest intelligently and long term, you can make use of the power of compound interest to make your money work for you. Read our investment series to learn more.
Invest in property
A lot of people would say that a home should not be an investment and I understand the sentiment. Renting a home when starting as a young adult has its benefits. Owning a home comes with a lot of responsibility and costs so it is something that should be done when ready and stable. However, owning your own home is a great goal to have and has a huge role to play in financial independence. A residential property that is fully paid for can determine when you can retire or the level of your disposable income when you do.
Insurance
Insurance is a risk management/financial protection tool. As an adult, it is important to take a view of the risks you might face. Think about your most precious assets and consider whether you need to buy insurance to protect them. My top 3 needed insurances are life, home (if you own a home) and car insurance which is legally required.
Your financial state can indicate whether you are self-insured or need to buy insurance. For instance, if you die and your loved ones will be left with mortgage debt and bills, you need life insurance, but if you will be leaving them with a healthy inheritance then you might not need insurance.
Retirement plan
When is the right time to start thinking about retirement? I have to admit at certain stages of my early adult life, surviving was my main focus but it meant leaving things too late. I tackled several mini-goals simultaneously and it was easy for me to manage things this way. However, if I was putting small amounts away in the stock market early enough it would have compounded and grown over time.
Make a plan of what you want your retirement to look like and decide on a dream retirement age. My dream retirement age sometimes seems far-fetched but working to a target makes me determined to put in whatever work is necessary to get there. So the answer to when you start thinking about retirement is now. The younger you are, the less pressure you have and the more time you have to take advantage of compound interest.
Make a will
Lastly, make a will. A will is a risk management tool like an insurance policy. It is also an expression of your wishes and instructions of how your possessions are distributed in the event of your passing.
If you have assets, think about making a will. You don’t have to be married or have children to make a will and you can always update your will when things change.
What happens if you die without a will?
Dying without a will means you have died intestate so your estate will be distributed according to the rule of intestacy. The rules are different for different countries and determined by where the deceased lived, whether they had a living husband/wife/civil partner, dependents and how much their estate is worth.
Making a will is important to avoid the state determining what happens to your estate and avoid a huge hassle for those you left behind.
What’s your score?
Adults in the house, how many can you tick off on this personal finance checklist? I scored 10 out of 10. Do you want to adapt this and make it your 2022 financial checklist?