One of the most confusing and scariest things about moving fully into adulthood is figuring out how you—not your parents—are going to pay bills, get insurance, and stay debt-free. The last thing on your minds in your 20s is planning for the future; however, it should be one of the most important.

In late 2006 the National Endowment for Financial Education partnered with USA Today and the Gallup Organization to poll more than 900 people from 22 to 29 years old for the “Young In Debt” series. Of those polled, 60% believed the financial pressures faced by their generation where tougher than those faced by previous generations. Their biggest financial concern was the cost of owning/renting and taking care of a home and the cost of education needs. The least of concern was saving money and health insurance or medical costs. These concerns need to move up on the list.

INSURANCE

Insurance can be confusing because there are so many kinds out there and a lot of young people aren’t sure what is necessary in their 20s. Jessica Hudson, a Virginia Farm Bureau agent in Blacksburg, explains what types of insurance are important at this time in your life.

She recommends that young people get renter’s insurance. Renter’s insurance covers personal property and runs about $100-200 a year, the least expensive insurance policy. It’s an easy and quick process and you could be eligible for a discount if you have another coverage plan (such as auto insurance) with the same company. Hudson explains that renter’s insurance is important because young people don’t have a lot of money and this protects personal property that could be stolen or ruined in a fire.

Health insurance is something that everyone needs and is extremely important for young people. Most jobs offer it; however, if yours doesn’t, look for a traditional plan with a high deductible. Auto insurance is another coverage plan that is necessary. It is important to know what your liability limits are. You need to make sure you are getting the best plan that fits your needs.

Hudson recommends going to talk to your agent and do a review at least every other year. Take a look at your options and current coverage. Other important times to talk to your agent would be during any big life changes such as marriage or purchasing a house. “Make sure everything is in place and it’s in place right,” Hudson said. She talks to her customers once a year and during times they have new needs or life-changing events.

Many wonder if life insurance is necessary at such a young age; Hudson said it’s better to start young. There are two options you can choose. She recommends whole life insurance, a type of permanent insurance where the policy lasts for the life of the insured. It’s inexpensive when you are young and harder to get as you age. The other option is term life insurance, which, as the name implies, lasts for a designated period and then has to be renewed.

Primerica, a Citi Company, offers financial services to help people make the most of their financial situation. Karen A. Cook, a Senior Representative for Primerica who operates out of Radford, discussed why she thinks that term life insurance is the best option.

“Insurance is key; it’s the foundation,” Cook said. With term life insurance your policy does not have a cash value and you have more money to invest in your future.

Many young people believe that the policy they receive from their employment is enough. Cook explained that it’s important to have another insurance policy in case something happens with your employment. “It scares me how underinsured people are,” Cook said.

DEBT AND SAVING

Cook has helped families understand how money works and uses an easy-to-understand portfolio to show them their current financial situation. “I have discussed with them their future goals and dreams and four out of five times, the family is completely off-track as to where they would like to be financially in the future.” The same goes for young people.

Imagine having a family where only one parent works. Even if you are making an impressive income, let’s say $100,000 a year, you could still have debt. Cook explained a recent situation where a family’s monthly debt payments totaled more than $5,000 and kept going in circles, “robbing Peter to pay Paul.” Their only protection was the income provided by the working parent. If something had happened to that working parent, the family would have been left in a horrible financial and emotional situation. Cook provided them with a solution to become debt free and obtain proper life insurance.

Even if you haven’t started a family, you want to be sure you’re headed in the right direction. “I think the moral here is: don’t wait until you’re upside down. You don’t have to be in debt to need an FNA [Financial Needs Analysis that Primerica customizes for clients free of charge] and you certainly don’t need to make $200,000 to use our services,” Cook said.

She suggests sitting down and looking at your income. Figure out a monthly cash budget and follow it. Give yourself some room in case something comes up. Your “blow money,” as she calls it, can be used for entertainment but try not to use it all every month. Take the money you have left over and invest it. Work with someone you know and trust. It takes about three to six months to start investing depending on your situation. “Once you have income coming in, you need to be saving,” Cook said.

Once you graduate from college, list all of your expenses and prioritize your debts. “Pay off the lowest amount first, that way it’s knocked out and it gives you motivation,” Cook said. That is how you’re going to get debt free. Her number one piece of advice for reaching that debt-free level is to work. “Don’t be afraid to get another job,” Cook said. She explained that just because you are 20 doesn’t mean you have to spend all your money. “You can’t get [to your goals by] living off of credit cards and partying,” Cook said. Instead, invest and save, work hard, write down future goals and lifestyle dreams, and figure out how to get there.

Another suggestion is to try to avoid credit card debt. According to Cook, debt is bad because you’re paying interest—thereby increasing the price of the original item—and just one slip up or late payment can lead to doubled interest rates and a ruined credit score. So what about that adage that says all college students need a credit card to start building credit? Cook suggests getting only one with a low limit and paying it off each month.

“The problem with many young people today is they don’t want to wait for what is tangible, and they don’t realize it took their parents 30 years to get there,” Cook said. In other words, it’s important to sleep on big purchases. There’s no need to buy impulsively when the items will be there tomorrow.

If you are in college or planning on going to college, Cook suggests getting student loans with low interest rates. Once you graduate, it’s time to pay off the loans, which can be a fearful process. According to the Student Loans Borrower Assistance Web site, payment first goes to any late charges or collection costs, then to any outstanding interest, and finally to your outstanding principal. Depending on the type of loan you get, you can either pay on an income contingent repayment plan or a more income-sensitive repayment plan that covers interest that accrues every month.

The Web site also explains that many private loans do not have flexible repayment plans and only under special circumstances such as military service or unemployment can you defer repayment. Your best bet to make repayment problem-free is to begin paying off a loan as soon as possible. Check out http://nslds.edu.gov or www.studentloanborrowerassistance.org for more information on student loans and repaying them.

The bottom line is that planning for the future isn’t necessarily easy, but it is a challenge that needs to be faced sooner rather than later. The earlier you can start saving and investing, the better off you will be as you transition out of your 20s.

Holly Hinte is a Media Studies student at Radford University and hopes to take this article to heart and do some financial planning.