Eight Financial Tips for Young Adults

0
35
Do optimists make more money?

Many young adults have no idea how to manage their money, financial tips, apply for credit, or get or stay out of debt due to this unfortunate lack. States are starting to address this gap; by 2020, 21 states will require high school students to take a personal finance course. 25 will need them to take an economics class.

That should benefit at least a portion of the next generation. But, for those who have graduated from high school, here are eight of the most important financial concepts to grasp.

Learn Self-Control

If you’re lucky, your parents taught you this skill as a child. If not, keep in mind that the sooner you master the art of deferring gratification, the easier it will be to keep your finances in order. You can easily purchase an item on credit right away. However, it is preferable to wait until you have saved enough money for the purchase. A debit card is also helpful because it withdraws funds from your checking account all at once, preventing an interest-bearing balance from accumulating.

If you have a habit of putting all of your purchases on credit cards, even if you cannot pay your bill in full at the end of the month, you may still be paying for those items ten years later. Credit cards are convenient, and timely payment contributes to a good credit score. Some even offer enticing incentives. Except in extreme cases, make sure always to pay your balance in full when your bill arrives. This financial tip is essential for building a good credit history.

Control Your Financial Future

Others will find ways to manage your money if you don’t learn to manage your own. Like evil, commission-based financial planners, some people may have bad intentions. Others, like Grandma Betty, who wants you to own your own house even though you can only afford one by taking out a risky adjustable-rate mortgage, maybe well-meaning but not know what they’re doing.

Instead of relying on others for advice, take control of your finances by reading a few basic personal finance books. Once you’ve armed yourself with knowledge, don’t let anyone catch you off guard, whether it’s a significant other who slowly drains your bank account or friends who want you to go out every weekend and blow a bunch of money with them.

Know Where Your Money Goes

After reading a few personal finance books, you’ll realize how critical it is to ensure that your expenses do not exceed your income. Budgeting is the best way to accomplish this. When you see how much your morning coffee costs over a month, you’ll realize that making small, manageable changes in your daily expenses can have the same impact on your financial situation as getting a raise.

Furthermore, keeping your recurring monthly expenses as low as possible can save you a lot of money in the long run. Even if you can afford an amenity-packed apartment now, choosing something simpler may allow you to afford a condominium or house sooner than you would otherwise.

Start an Emergency Fund

Pay yourself first; one of personal finance’s most-repeated mantras is one of the most-repeated mantras. No matter how much you owe in student loans or credit card debt or how low your salary appears, it’s a good idea to set aside some money in your budget each month for an emergency fund.

Having money set aside for emergencies can keep you out of financial trouble and help you sleep better at night. Also, get into the habit of saving money and treating it as a non-negotiable monthly expense. You’ll soon have more than just emergency funds held up. You’ll have money for retirement, vacation, or even a down payment on a house.

It’s simple to deposit your funds into a traditional savings account, but this earns almost no interest. Place your fund in a high-yield savings account, a short-term CD, or a money market account. Otherwise, inflation will eat away at the purchasing power of your savings. Ensure that the rules of your savings vehicle allow you to access your money quickly in an emergency.

Start Saving for Retirement

Just as your parents probably sent you off to kindergarten with high hopes of preparing you for success in a world that seemed eons away, you must plan ahead of time for your retirement. Because of the way compound interest works, the earlier you start saving, the less principal you’ll need to invest in getting to the amount you need to retire.

Why start saving for retirement in your twenties? Here’s an example from Investopedia: You begin investing in the market with $100 per month, averaging a positive return of 1% per month or 12% per year compounded monthly over 40 years. Your friend of the same age begins investing 30 years later and invests $1,000 per month for ten years, averaging 1% per month or 12% per year compounded monthly.

Company-sponsored retirement plans are a perfect option because you can contribute pretax dollars. Companies often match a portion of your contribution, effectively giving you free money. Contribution limits for 401(k)s are typically higher than those for individual retirement accounts (IRAs), but any employer-sponsored plan that you are fortunate enough to be offered is a step closer to financial health. 2

Don’t give up if you have access to a company plan. Self-employed individuals have a variety of options for establishing retirement plans. Others can open their IRAs, allowing a set amount of money to be withdrawn from their savings account and deposited directly into their IRA each month. Even if it’s a small amount, it will eventually add something useful.

Protect Your Wealth

To ensure that all of your hard-earned money does not disappear, you must take precautions. Even if you can’t afford them all right now, consider the following steps:

If you rent, get renters insurance to protect your belongings in the event of a burglary or a fire. Read the policy carefully to determine what is and isn’t covered.

Disability insurance safeguards your most valuable asset, your ability to earn a living by providing you with a regular income if you cannot work for an extended period due to illness or injury.

If you need help managing your money, look for a fee-only financial planner who will give you unbiased advice in your best interests rather than a commission-based financial advisor who will make money if you sign up for investments their company supports.

In Conclusion

The first three are relatively risk-free. The remaining three have tremendous potential for financial setbacks and more significant monetary rewards. Learning how to invest is essential for increasing your savings and, eventually, your wealth.

  • Support
  • Platform
  • Spread
  • Trading Instrument
Comments Rating 0 (0 reviews)

Leave a Reply

User Review
  • Support
    Sending
  • Platform
    Sending
  • Spread
    Sending
  • Trading Instrument
    Sending