As a young adult, taking the time to learn a few basic financial rules can help you build a healthy financial future. Unfortunately, personal finance is not a required subject in most high schools or colleges. This lack of basic financial education leaves many young adults clueless about how to manage their money, applying for credit, and how to get or stay out of debt.
Getting your financial footing can be a challenge when you’re young. However, it’s never too early to start financial planning. By creating a budget, improving your financial literacy, and understanding investments, you can set yourself up for success while you’re in your 20s.
That being said, here are some important financial tips for young adults to learn early, designed to help you live your best financial life.
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Useful And Beneficial Financial Tips for Young Adults
Get Financially Literate
Financial literacy means understanding how to make profitable decisions with your money. In other words, getting a handle on the basics provides a solid foundation for your financial habits and goals.
For example, if you want to get out of debt, it is essential to understand the best way to do so. Specifically, you would need a working knowledge of interest rates, budgeting, and how to compare the growth of your debts versus your investments.
This is one of the financial tips for young adults to learn because this way, you will know how much your debt costs per month. You will also know how much extra money you have to tackle your debt with and whether diverting money from your investment contributions is worth it.
Start Saving and Investing
You might wonder what the point of rushing to save money is; after all, you’ve got thirty or forty years until retirement. However, that’s exactly why it’s best to start contributing to an investment account now: you’ll compound your returns over several decades and grow your savings exponentially.
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Learn self-control
This is one of the most useful financial tips for young adults to learn and, if you’re lucky, your parents taught you this skill when you were a kid. If not, keep in mind that the sooner you learn the fine art of delaying gratification, the sooner you’ll find it easy to keep your finances in order.
Because while you can effortlessly purchase an item on credit the minute you want it, it is better to wait until you’ve actually saved up the money. Do you really want to pay interest on a pair of jeans or a box of cereal? If you make a habit of putting all your purchases on credit cards, regardless of whether you can pay your bill in full at the end of the month, you might still be paying for those items in 10 years.
If you want to keep your credit cards for the convenience factor or the rewards they offer, make sure to always pay your balance in full when the bill arrives, and don’t carry more cards than you can keep track of. This is one of the financial tips for young adults that is crucial for creating a healthy future for your credit history.
Learn to Budget
Once you’ve read a few personal finance books, you will understand two rules.
- Never let your expenses exceed your income, and
- Watch where your money goes.
The best way to do this is by budgeting and creating a personal spending plan to track the money coming in and going out.
Tracking expenses, like your expensive morning coffee, can provide a valuable wake-up call. Small changes in your everyday expenses are under your control and can impact your financial situation. Keeping monthly expenses, like rent, as low as possible can save you money over time and put you in a position to invest in your own home sooner than later.
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Minimize Debt
This is one of the most useful financial tips for young adults to learn because managing your debt is vital to your finances. Instead of letting interest payments eat up more cash, it is best to create a debt repayment plan. There are two popular approaches to debt repayment: snowball or avalanche.
- The snowball strategy, which involves means paying off your smallest debts first. Once you repay your smallest debt balance, you can apply this payment to your next smallest debt. This way, you gain momentum with each payment.
- The avalanche approach, which means attacking the debt with the highest interest rate, the logic being that interest makes debt more expensive over time. This way, you get rid of the costliest debt first, allowing you to apply an increasing amount of money to your debt’s principal.
Remember, debt is the inverse of an investment. An investment grows based on a rate of return, and debt grows because of interest. Therefore, it’s key to get your debt under control before you start investing significant amounts of money.
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Control your financial future
If you don’t learn to manage your own money, other people will find ways to (mis)manage it for you. Some of these people may be ill-intentioned, like unscrupulous commission-based financial planners. Others may be well-meaning, but may not know what they’re doing.
So, instead of relying on others for advice, take charge and read a few basic books on personal finance. It is one of the most useful financial tips for young adults to learn.
Once you’re armed with personal finance knowledge, don’t let anyone catch you off guard. Whether it is a significant other that slowly siphons your bank account or friends who want you to go out and blow tons of money with them every weekend.
Start an Emergency Fund
A mantra in personal finance is “pay yourself first,” which means saving money for emergencies and your future. This simple practice keeps you out of trouble financially and helps you sleep better at night. The tightest budget should put some money into an emergency fund every month.
Once you get into the habit of saving money, you will stop treating savings as optional and start treating it as a required monthly expense. Many accounts offer the power of compound interest, such as a high-yield savings account, short-term certificate of deposit (CD), or money market account. This is one of the most useful financial tips for young adults.
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Save for Retirement Now
No matter how young you are, plan for your retirement now. With the power of compound interest, when you start saving in your 20s, you will earn interest not only on the principal you deposit but also on the interest you earn over time, and you will have what you need to retire someday.
Company-sponsored retirement plans are a great choice, as the companies will match part of your contribution, which is free money.
Protect your wealth
If you want to make sure that all of your hard-earned money doesn’t vanish, you’ll need to take steps to protect it. If you need help managing your money, find a fee-only financial planner to provide unbiased advice that’s in your best interest, rather than a commission-based financial advisor, who earns money when you sign up with the investments his or her company backs.
You’ll also want to protect your money from taxes, which is easy to do with a retirement account, and inflation, which you can do by making sure that all of your money is earning interest.
Partner With a Financial Planner
Taking control of your finances is a serious endeavor and one of the best financial tips for young adults. Luckily, financial professionals can help you develop a financial plan tailored to your unique circumstances. In addition, their knowledge and expertise can fill the gaps in your understanding. This is one of the most important and useful financial tips for young adults to learn.
It’s best to understand how your financial planner makes a living before committing to one. Financial advisors can charge in multiple ways. For example, some advisors charge per hour, while others charge a percentage of the assets they manage.
Therefore, it’s recommended to find an advisor whose fees make sense with your situation. In addition, working with a fiduciary ensures the advisor puts your interests first instead of signing you up for investments with high commissions and management fees.
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A Final Word On Useful Financial Tips For Young Adults To Learn
Creating a financial plan requires effort, but it’s well worth it. Your financial habits will drive your lifestyle now and during retirement, so it’s best to pay attention to these financial tips for young adults to get your finances under control.
A healthy budget, tax plan and retirement account will make all the difference when you’re starting off. And, fortunately, you don’t have to go it alone. You can hire a financial professional to establish your goals and put you on the right path.
