11 money questions you should be able to answer when you turn 25
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If you're looking to build wealth or maintain solid financial health, you need to set a strong foundation. Learning about money isn't always top of mind when you're just starting to adult — but it should be because mastering the basics can make major milestones in your life so much easier. Here are 11 money questions you should be able to answer when you turn 25.
Those three little numbers can affect your ability to get a credit card, car loan, apartment lease and more, so it's important to know where you stand. You can pull your credit reports for free each month at AnnualCreditReport.com. Those reports won't come with a score, but you can purchase one for a nominal fee or tap credit-centric websites, like Credit Sesame, to see a version of your credit score for free each month.
The short answer: Pay all your bills on time, keep your debt levels low (below at least 30% of your total credit limits) and limit new credit inquiries. The long answer depends on your current situation. If you have thin credit (meaning no credit score as opposed to bad credit), apply for a entry-level credit card, charge small purchases and pay that balance off in full each month to establish a credit history. If you have bad credit, see the short answer above to get things back on track.
Tap a financial app or this simple budgeting spreadsheet to find places you can pare back — or to draft a budget for the first time.
General rule of thumb is to bank away at least three to six months worth of expenses for a rainy day. If you have decidedly less in savings, try auto-rolling a small portion of each paycheck into a separate high-yield savings account to boost your coffers.
Yeah, we know, looking for life insurance isn't top of mind when you're young and in good health — but it should be, as people who are young and in good health qualify for the best life insurance rates. We can help you easily compare life insurance quotes.
Everyone loves a big tax refund, but getting one essentially means you gave the government an interest-free loan all year. Plus, given major changes to the tax code, there's a chance you're not setting aside enough money from your paychecks to cover your 2018 tax bill. Fortunately, the Internal Revenue Service has a calculator that'll calculate your ideal withholding status based on your salary and other financial information.
Lest you join the ranks of Americans with $0 in their retirement accounts. If your employer offers a 401(k) plan, making contributions is the easiest way to start your nest egg. If you're a freelancer, look into a Simplified Employee Pension (SEP), a Solo 401(k) or individual retirement account (IRA). Here's a full guide to building your own benefits package.
Your net worth is the sum of your assets, minus your liabilities. At 25, it's probably not very high. But given your net worth is one of the best gauges of your financial health, it's good to familiarize yourself with the concept and number.
Most people know they can stay on their parents' health insurance plan until they turn 26, thanks to former President Barack Obama's signature health care law. They also know they can get health insurance through an employer. But there are backup options available if those plans are no longer available to you. For instance, low-income residents in certain states can apply for Medicaid or apply for Obamacare through the federal or state health care exchanges. (Losing health insurance qualifies you for a special enrollment period.)
In other words, don't assume you need to go without coverage. We've got a roundup of backup backup health insurance alternatives here.
Avoid under-valuing yourself by researching what companies are paying employees in positions you're angling for on sites like Glassdoor or PayScale ahead of a job search. Ditto if you're already employed. If you determine you're underpaid, at least be on the lookout for new jobs. Loyalty is often a virture, for sure, but data shows job switchers tend see higher wage growth than job stayers.
As you master the basics, think bigger. Financial security provides invaluable peace of mind — and there's more than one way to get there. In fact, here are 50 ways to make your first $1 million.
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