Financial literacy is crucial as young adults start earning and managing money. Northwestern Mutual provided valuable insights on personal finance basics that students and young professionals should know.
Evaluating Relationships with Money
An important first step is considering one's relationship with and feelings towards money, as well as setting goals for earning, saving, spending and investing money. This self-reflection establishes priorities and values needed to guide future financial decisions.
Types of Debt: Good vs Bad
Not all debt is created equal or bad. Debt taken on to invest in assets and future earning potential - like student loans, mortgages and business loans - can pay dividends long-term if managed wisely. However, high-interest debt like credit cards or for luxury purchases rarely leads to financial gains and should be minimized.
Importance of Insurance
Insurance coverage protects income earning ability in case of illnesses, disabilities or premature death. Obtaining health, disability, life and liability insurance when young and healthy allows individuals to lock in lower premium costs for financial security later on. Failure to insure risks significant loss of income.
Early Investing and Compound Growth
Individual investing in assets like stocks, bonds and mutual funds should start as early as possible due to the power of compund interest over decades. Even small investments in one's 20s can grow exponentially over time and become substantial retirement assets later on. Young adults should make participating in workplace retirement accounts and building personal investment portfolios priorities.
Evaluating Job Benefits Holistically
When evaluating job offers and total compensation, individuals need to look beyond just salary. Important company benefits like health insurance, retirement account contributions, equity options and profit sharing can make up significant portions of total reward packages and need thorough research when comparing offers.
Developing personal financial literacy and money management skills early allows young adults to set the foundations for their long-term economic well-being and success.
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