It doesn’t matter whether you make $20,000 per year or $200,000 per year. Having a budget will improve your life in the long term. Unfortunately, the term “budgeting” makes people think of limiting their fun and restricting their choices, but if you take the holistic view, budgeting actually helps relieve constraints and increase life choices.
The financial needs of single people differ from the needs of couples and families, and the needs of single parents obviously differ from those of the single person without dependents.
However, there are several solid budgeting principles that apply to single people of all ages, incomes, and life situations, like these five.
Building an Emergency Fund is Critical Conventional wisdom says you need half a year’s worth of living expenses socked away for emergencies, but keep in mind that the higher your salary, the longer it generally takes to find a comparable job. According to the Boston Globe, a general rule of thumb is that it takes one month of job search for every $10,000 you were earning. Place emergency funds where they can be accessed quickly and without penalty if you need them. Money market accounts and high-interest savings accounts are good choices. Start your emergency fund even if you can only spare a few dollars monthly. Any emergency savings is better than none, and if you use direct deposit you’ll be surprised at how little you miss the money you set aside.
Assess Your Need for Life Insurance If you are a single parent, you need life insurance in the amount of at least ten times your annual salary. Young, healthy people generally pay low premiums. If you don’t have dependents, but worry that a family member would be burdened by burial and legal costs if you were to die, then you should consider purchasing a term life insurance policy in an amount sufficient to deal with your estate and burial. Lifehacker has some informative guidelines for determining how much life insurance you need.
Start Saving for Retirement as Soon as Possible If you’re a young single person, start saving for retirement now. When you start saving for retirement in your twenties, you set yourself up for a far more comfortable retirement than if you start in your thirties. Furthermore, as a younger investor, you can take more risk with your 401K portfolio than older people can, and should some of your risks not pay off, you still have plenty of time to recover. If your employer matches 401K contributions, do not pass up this opportunity. Those 401K matching benefits are the closest thing you’ll get to free money, and they really add to your personal wealth over the decades.
Use Bi-Weekly Paychecks to Your Advantage If you are paid bi-weekly, you have another easy opportunity to boost your savings. Rather than depositing money into savings at the beginning or end of each month, have savings automatically withdrawn from your paycheck. Chances are you won’t miss it, and at the end of the year you’ll essentially have an extra month’s worth of savings in the bank since you have 26 pay periods in a year. If you buy a house and can arrange bi-weekly mortgage payments, it’s also a terrific way to pare down that principal over the years.
Never Assume that Marriage Will Fix Your Finances Don’t think of single life as a precursor to “real” life that involves getting married and having children. Manage your money effectively as a single person, and don’t ever get into the mindset of, “I’ll budget when I’m married.” The financial habits you develop now can have an enormous influence on how you manage money should you marry and have a family. Going into marriage with an emergency savings account, a thriving 401K and limited debt makes the future brighter for both partners. Real life is right now. Don’t put off adult responsibilities until you have a ring on your finger.
Some single people, particularly very young ones, mistakenly think budgeting is unnecessary if they keep the bills up to date and don’t abuse their credit. However, the financial habits you develop as a young adult have a massive impact on your future.
Budgeting now will make life easier should you buy a house, get married, or have children, and it can make the difference between a comfortable retirement and a retirement that requires a lot of sacrifices.
This article originally appears on Mint.