Congratulations! You've graduated and landed your first real job. Even in an entry-level position, your paycheck should be noticeably heftier than those you earned as a student in part-time, minimum wage jobs. Just think of all the things you can buy now!
Not so fast. What may seem like a fair amount of money has to be spread a long way once you are out on your own. Here are six examples of the harsher financial realities of independent life:
- Car insurance. Even if you've already been paying your own car insurance bill, you may be in for an unpleasant surprise when you come off of your parents' insurance and get your own policy. According to Cars.com, as a young adult you should expect to pay 25 to 50 percent more for insurance than your parents pay.
- Auto repairs. Younger drivers tend to choose older cars out of necessity, because they are cheap. Cheap to buy, that is -- not so cheap to drive. Put some money from each paycheck into your savings account to prepare for repair expenses, and ideally to start saving toward a newer car.
- Health insurance. The Affordable Care Act allows young adults to remain on their parents' health care plan until they turn 26. If you are under 26 years old and your employer offers health care, you should make a comparison to see if it would be more cost-effective to stay on your parents' plan or to switch to your employer's plan. In either case, it probably won't be cheap. A Towers Watson study projects that employees will pay an average of $2,888 towards their health care premiums in 2013, and that does not include an average of $2,515 in average out-of-pocket costs (i.e., for co-pays and uncovered items) at the point of care.
- Telecommunications upkeep. Some combination of a smartphone, tablet and personal computer is probably essential to your lifestyle, and all these machines have a limited life span. Start setting aside a portion of your savings account for your next telecommunications purchase.
- Emergencies. The above are some expenses you can expect to face. Then there are various unexpected expenses that crop up, from needing a more professional wardrobe for the workplace to the possibility of losing your job. As soon as you start working you should begin building an emergency fund, and keep building it until you have six months of expenses set aside.
- Long-term savings. Beyond being covered for your living expenses and the major items listed above, coming of age financially also means starting to think ahead. You'll face a variety of needs over your lifetime which require steady, long-term savings -- buying a house, putting kids through school, retirement, etc. Even if you are in your early 20s, don't dismiss these long-term needs as being too far off in the future. The earlier you start saving for long-term needs, the easier they'll be to afford when the time comes.
People get into financial troubles because they establish a lifestyle that doesn't account for all of these financial realities, and then are faced with surprise expenses. If you adjust your lifestyle to accommodate these realities from the start and build your savings account accordingly, you may avoid trouble and disappointment down the road.