Important Financial Firsts
Know what you're getting into
New financial situations can seem tricky at first. Knowing what to expect and what to look out for will help you find your way through unfamiliar territory. Here are some tips to help you handle some common first experiences.
Renting an apartment or home
- Landlords often require first and last month's rent, as well as a security deposit. Find out how much a landlord can legally charge for a deposit. Each state has different limits, ranging from one month's rent to no statutory limit.
- In some cases, local and state regulations require that the money you put down (last month's rent and security deposit) be placed in an interest-bearing account, with earned interest going to the renter. Be sure to find out about this before signing the lease.
- Rental agreements should always be in writing. Keep receipts for all cash deposits and record the condition of the apartment when you move in (with photos if possible).
- Look into renters insurance. It's quite inexpensive, and if anything happens to your personal property, it could be the only backup you have.
- Know your rights as a renter. There are many great online sources about how renters can protect themselves, including nolo.com.legal-encyclopedia/renters-rights/.
- Think beyond the sticker price. Consider other costs above and beyond your car payment, like insurance, registration, maintenance, repairs and gas.
- Carefully consider your financing options.
- With pre-approved bank or credit union financing, you know exactly how much you can spend when you're negotiating with an auto dealer or private seller.
- Dealership financing, on the other hand, is often structured so that very little of the principal is paid until the interest is almost completely paid off. As a result, if you want to sell or trade the car in a few years, you might find that you still owe more than the car is worth.
- Get auto insurance. Most states require you to have a minimum amount of liability insurance for accidental bodily injury and property damage.
Paying income taxes
- If you have an employer, choose the right number of allowances on your form W-4. This controls how much is deducted from your paycheck for taxes. If you're single with one job, you'll usually start with one allowance for yourself. Add more if you have dependents.
- If you're self-employed, keep careful records of your income and work-related expenses, many of which are tax-deductible. And be sure to make quarterly estimated income-tax payments. It's a good idea to talk with an accountant or tax advisor to make sure you understand what you need to do.
- Get familiar with the basic tax forms:
- Form W2—Your employer fills this out and gives you a copy at tax time. It reports a year's worth of income (including tips and bonuses).
- Form 1099—If you work as a contractor or consultant, earn interest, sell an investment, or receive dividends or other types of non-employee-related payments from a business, you will receive a Form 1099, which you’ll need for your tax return.
- Form 1040—This is the basic form for filing your income tax return.
- Use a program like TurboTax to make it all much easier. It will walk you through each item you need to report and fill out the tax forms for you.
Opening an investment account
- An investment account is an account with a brokerage firm that allows you to buy and sell securities such as stocks and bonds, mutual funds and exchange traded funds and holds your investments. Cash not invested is generally held in a money market fund
- When you're looking for a brokerage firm, keep in mind that you're not choosing a person, you’re choosing a professional firm. Don't base your decision on a specific broker. Rather, look at the reputation, location and breadth of services a firm offers.
- If you're interested in investing online, check out a potential broker's website for the types of services, technology and security offered.
- Before you jump into investing, take the time to learn some basic principles:
- Long-term investing—why the power of compounding makes the length of time more important than the amount of money you invest
- Asset allocation—how to divide your money between stocks, bonds, cash or other investments
- Diversification—the importance of investing in more than one company or industry
Don't hesitate to ask for help. Your parents or another person with financial experience can be a great resource. A little up-front guidance will help you stress less and accomplish more.
The information on this website is for educational purposes only. It is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.