Adulting 101: Personal Finances

The first lesson of many. Graphic by Haley Morkert. 

LAUREN HOUGH | OPINION REPORTER | lhough@butler.edu

Disclaimer: I am a mere 20 years of age, with much still to learn — and virtually no finances to manage. Please take my financial advice with a grain of salt. 

As of late, social media has made me realize that I have not had a singularly unique life experience. Take for instance, high school education: did you unnecessarily memorize every U.S. state capital, learn page-long mathematical proofs — just to forget them minutes after the chapter test — or spend days chanting “the mitochondria is the powerhouse of the cell?” Because same.

As I continue life beyond the four walls of my high school, I’ve had to learn how to fend for myself in the real world: I change tires, pay taxes and cook food — the horror! Yet time and time again, I find myself wondering “why in the world didn’t they teach me this before?” A girl can only call her parents with questions so many times a week.

So friends, I’ve done the hard work for you. Today, we are going to share the experience of personal finance education.

Credit

While debit cards are convenient — and force you to pay attention to the balance of your bank account — the single most important thing you can do for yourself as a financially-responsible adult is to start using credit cards. 

Using credit cards will open a line of credit that is essential for establishing a future in the current economy. Credit is quantitatively measured through something called a ‘credit score.’ This credit score is what banks will use to determine whether or not you are responsible enough to receive a loan, as it indicates whether or not you reliably pay back your credit card loans on time. 

However, building a reputable credit score requires having credit history, so move that debit card to the back of your wallet and open a credit card ASAP. Not to mention, you can actually get a small percent of “cash back” from credit card companies for simply spending money.

Once you open a card, it’s important to remember to pay off your statement in full every month. Credit card debt can sneak up quickly if you aren’t diligent about repayment. Senior accounting and finance major Austin Holley stressed the importance of opening a credit card, 

“Credit is very risky, but it’s something that everybody needs to get involved with,” Holley said. “It’s ridiculously important.”

For more information about credit — and tips from your very own Butler faculty — check out the College Student’s Guide to Personal Finance: Credit, Insurance and Investment Edition.

Tax Anatomy

Taxes are just about the biggest, scariest, personal finance monster you’ll have to tackle as an adult. Now, I’m no tax lawyer or CPA, but I can help you make sense of some very — and I mean very — basic personal tax concepts. 

First and foremost, there are thresholds based on age and income that determine whether or not you’re required to file a tax return. As of 2020, that threshold for a single person under the age of 65 was around $12,400. You can take an online interview on the IRS website to determine if you’re responsible for filing a tax return each year. However, filing a tax return could be beneficial to you even if you don’t meet the threshold requirement — there’s a chance you’ll be refunded some of the federal income tax money that was taken out of your paycheck throughout the year. 

That being said, it’s important to know what exactly is being taken out of your paycheck throughout the year. There are three primary taxes taken out of your paycheck before it is deposited into your bank account: Social Security, income taxes and unemployment taxes.

Let’s break them down one at a time.

Social Security  — also lovingly referred to as FICA —  stems from the Federal Insurance Contributions Act. Put simply, Social Security taxes are used to support elderly and disabled individuals who can no longer contribute to the workforce. In other words, you pay taxes when you’re young and working, but then reap the benefits of Social Security when you’re old enough to retire, at least until it runs out. Currently, 6.2% of employee income — up to the $142,800 taxable maximum — will be taken out for Social Security.

Income taxes take on many forms — government taxes, state taxes and in some situations, local taxes. At the very least, your tax return will include both a government tax form and a state tax form. However, it’s important to be careful about where you are doing work — if you live in one state but work in another, you may have to fill out two separate state tax returns. Softwares like TurboTax are tools you can use to help prepare your tax returns each year. These softwares can also help determine if alternative forms of income — like student loans or scholarships — are taxable.

Unemployment taxes go towards supporting individuals who qualify for and need unemployment benefits. Unlike Social Security, there is no maximum unemployment tax amount — you will be taxed your state’s unemployment tax rate for every dollar you earn. In Indiana, the unemployment tax rate is currently 2.5 percent.

Next Steps

Financial preparation and awareness as a college student will set you up for success in the real world. While there should arguably be a place for personal finance within education across the nation, we have been left to fend for ourselves — let’s use it as an opportunity for personal growth. 

Senior elementary education major Madison Pius is taking personal finance education into her own hands.

“I told myself that after I graduate, I need to take a class,” Pius said. “There’s so much information and it’s too much for me to handle on my own.” 

Even though financial education isn’t built into our curriculum, Butler offers a personal finance class open to any student — FN 241 — as well as virtual financial aid resources to help navigate school-specific finances. Do what you can to take advantage of these resources while they’re available to you and start seeking out personal finance education now so that you’re ready when the real adulting starts.

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