Reaching adulthood is a major milestone. It comes with new freedom and opportunities, as well as responsibilities. This guide is intended to highlight some of financial and legal steps to consider as you step into this new phase of life.
Becoming a Taxpayer
Taxes come in various forms – income, capital gains, property – and understanding your obligations is crucial.
Income Taxes: This tax applies to the earnings you receive through employment, investments, or business activities. It’s important to understand how your income is taxed, as well as the various deductions and credits available to you. By effectively managing your income taxes, you can optimize your financial strategy. Depending on where you live, you may be obligated to pay taxes to federal, state, or local governments. Working with a qualified tax preparer can help make sure you are paying the appropriate taxes.
Capital Gains Taxes: Capital gains tax is imposed on the profit you make from selling appreciated assets such as stocks, bonds, or real estate. Understanding the distinction between short-term and long-term capital gains is vital, as they are taxed at different rates. With careful planning, you can strategically manage your investments to minimize your tax burden.
Property Taxes: Property tax is levied on real estate by local governments and reflects the value of the property you own. These taxes fund essential community services like education, infrastructure, and public safety. Being aware of how property taxes are assessed and any exemptions you may qualify for can significantly impact your financial planning as a homeowner.
For those filing a tax return for the first time, it’s important to start by knowing your Social Security number and keeping any tax paperwork you get throughout the year to reference. The process might seem daunting, but it’s a fundamental aspect of managing your finances and impacts everything from your paycheck to your future retirement benefits.
Managing Your Own Health Insurance
Turning 18 often means reevaluating your health insurance coverage. The age at which you need your own coverage varies by state. Some young adults can remain on a parent’s plan until age 26, but there are other options too, such as college health plans or securing your own policy. Understanding terms like premiums, deductibles, and out-of-pocket maximums is key to selecting the right plan for your needs.
Building and Protecting Your Credit
Credit is a powerful tool when managed wisely. Establishing a good credit score early on can make future financial endeavors, like buying a car or a home, much easier. Tips for building credit include using credit cards responsibly and paying bills on time. Remember, good credit opens doors; bad credit imposes limitations.
Creating a Personal Budget
Budgeting isn’t just about limiting spending; it’s about empowering your financial decision-making. Tracking your income and expenses allows you to make informed choices and helps avoid unnecessary debt. Start simple and refine your budget as your financial situation evolves.
Planning for Your Retirement
Yes, retirement! It may seem a lifetime away, but starting your savings early can lead to a more comfortable retirement due to the power of compound interest. Understanding the basics of investments and retirement accounts now is powerful knowledge.
Build Financial Literacy
Stay informed by reading reputable financial publications and listening to podcasts. The more you know, the better equipped you will be to make sound financial decisions.
Potentially Coming Into Assets
For those inheriting assets or being named a beneficiary of a trust upon reaching the age of majority, it’s vital to understand the responsibilities and potential tax implications that accompany asset management. Handling these assets wisely can set the foundation for your financial future.
Where to Seek Professional Advice
Transitioning into adulthood and managing newfound financial responsibilities can be overwhelming. Seeking the guidance of a financial adviser can provide personalized advice tailored to your unique needs and goals. At Howland Capital, we’re committed to helping you navigate these responsibilities and opportunities, backed by our extensive experience and dedication to our clients.
The transition into adulthood is an exciting and significant time in your life. By understanding crucial financial and legal steps, building good habits, and seeking professional guidance when needed, you can confidently step into this new phase with a strong foundation for the future. Continuing to educate yourself on personal finance and staying updated on changes in the law will help you are make informed decisions and set yourself up for your future. As you embark on this new chapter in life, remember to stay informed, seek professional guidance when needed, and most importantly, enjoy the adventure.
