Dear Carrie, I'm a sophomore in college and would like to start some kind of financial plan to help protect me in the future. What's the best kind of investment at this stage in my life? --A reader
It's encouraging to see someone your age thinking so broadly -- and wisely -- about their financial future. With current surveys showing that during these challenging times more and more young people are living at home and struggling to become financially independent, you're smart to be thinking about this now.
And you're right on when you say "financial plan." Because protecting yourself financially isn't just about investing. It involves looking at all the pieces of your financial life to make sure they're working together for both the short and long term.
In fact, investing is one of the last pieces to put into place. So let's first go through some basic financial planning steps for your stage in life.
Set Yourself Up
Establishing a practical foundation is step one. It's easier now when your financial life is fairly simple-and will help you manage wisely as your finances become more complicated.
(SET BOLD) Open the right accounts. (END BOLD) Shop around for low or no-fee checking and savings accounts with low minimum balances and extras like unlimited checking and free online bill pay. Once you have money to invest, open a brokerage account.
(SET BOLD) Establish -- and control -- credit. (END BOLD) Get a credit card in your own name, ideally with low interest and no annual fee. (If you're under 21, an adult must co-sign.) Then use it so that you establish a credit history. But be careful. Misuse of credit creates many problems, and a negative credit history can follow you for years. For starters, never use a credit card for small purchases, and make a commitment to pay off your balance every month.
(SET BOLD) Create files to keep track of your financial activity. (END BOLD) Whether you keep paper or online files, here are some categories that make sense: Bank accounts, Debt, Household Expenses, Taxes, Insurance, Personal documents, Retirement and Investments. Some categories may not apply to you yet, but might get you thinking about the future.
Write Down Expenses
This is just simple budgeting. Write down essentials like rent and groceries and nice-to-haves like entertainment and travel. Now make sure your income, whether it's earned, an allowance or student loans, can cover your needs. Get in the habit of keeping track and making adjustments now, and you'll be less likely to over-extend in the future.