How Young Adults Can Get Their Financial Houses in Order

Updated: Feb 20, 2020

“Getting your house in order” is a general term for arranging affairs and problem-solving. It can be applied to a number of different situations and those who “have their house in order” are thought to have it all figured out. As a young adult who is just starting out in your new career and building a family, it can be easy to put off getting your house in order. You may think you have time to it in the future, or you might not understand everything that is involved. Young adults can also get overwhelmed by the task, which causes them to procrastinate.

Unfortunately, the longer you go without getting things in order, the worse your situation will get. I enjoy working with young adult on issues such as paying off debt and understanding different types of investments, all of which are part of getting your financial house in order. Here is an overview of what else is involved and how you can give yourself the best possible financial start in life.

Get a Basic Filing System

When I start asking questions of my young adult clients, I’m amazed at how many of them don’t have a basic filing system for items like receipts, bills, tax documents, warranties, insurance policies and retirement statements. It’s vital to develop a simple system, either electronically or with traditional folders, that will help you retain important documents. You should also know how long documents should be kept (for example, the IRS recommends you keep tax documents for seven years), how to safely store them and how to properly dispose of them so they cannot be stolen and used for fraudulent purposes.

Determine Your Net Worth

You may think that net worth is only important once you’re older, but it’s a good idea to determine a baseline now and then watch as you increase that net worth throughout your life.

Using either a piece of paper or a spreadsheet, write out every financial asset or debt. Assets include retirement accounts, bank accounts and large items you have paid off such as cars or homes. Debts include credit cards, mortgages and student loans. Once you have these listed, you can subtract your debts from your assets to see your net worth. This is also a convenient document for you to look at when making budgeting or savings decisions.

Commit to Regular Comprehensive Reviews

You should have a good idea at this point where you are financially and feel more secure that you have everything in order. To maintain this and ensure that you make the changes necessary as your life changes, you need to commit to regular comprehensive reviews. I suggest a comprehensive review with my clients at least every year. In this stage of life, your situation can quickly change, though, so it’s a good idea to review more often if you are changing jobs, getting married, or if your income situation is significantly altered. Here are the areas that should be reviewed:

Investments - You should understand the basics of investments such as how taxes affect them and asset allocation. Now it’s time to look further into your investment mix to make sure they are in line with their goals, current risk tolerances and timelines. Lives can change quickly and if you don’t review your investments regularly, your portfolio could easily get outdated.

Retirement plan contributions - It might seem premature to go over retirement plans at this age, but I personally believe it’s never too early to plan for retirement. Go over your 401(k) plans, IRAs and other retirement vehicles to ensure they are getting the maximum employer match and maxing out your limits for tax-deferred plans. Without regular review, you could be leaving money on the table when it comes to saving for retirement.

Insurance - Regular reviews of your insurance are important, especially when you are making life changes. Homeowner’s or renter’s insurance, car insurance, life insurance, and other policies should be reviewed every year or whenever you make a change that affects coverage. You should also regularly review your health insurance to make sure deductibles are where you want them to be and that you have the best plan for your unique situation.

Having your financial houses in order and up to date is important as you start your adult life and will help you create good financial habits for the future.

Have questions about getting your financial house in order? Please leave them below!