One of the amazing things about being a young adult is that you have enough time to set your vision, chase after your goals, and ultimately shape your life into exactly what you want it to be. But in all of this, you must not fail to build your financial footing as well.
It is imperative that you intentionally make the right decisions that will catapult you to financial success later in the future. So whenever you find the opportunity to observe financial tips for young adults, you should take them seriously.
My journey to financial stability began when I had just completed college. Fortunately, I didn’t have student debt holding down my finances at the time. This gave me the freedom I needed to plan for my income as I earned. Even though it took a while before I eventually built my finances to the point where I felt fulfilled, I knew that I attained financial success because I started early—as a young adult.
In this post, we will delve into the most important aspects of your personal finance. You’ll learn tips and strategies that can help a young person like you excel financially and achieve long-term goals. Let’s get started!
What’s The Best Financial Advice For Young Adults?
The best advice every young adult can receive is to avoid debt and save money. Being in debt can hinder your financial goals since a major part of your income would be put towards paying down the debt balances. But when you become debt-free, you have the opportunity to manage your income efficiently, save, and invest.
What Can Young Adults Do Differently For Their Finances?
Although young adults have the advantage—an opportunity to be financially stable before it’s too late, it’s important that they do things differently so they don’t end up like many older adults who struggle financially.
Here’s the thing you must keep in mind. Many grown adults today were raised by parents who weren’t financially educated and equipped with the right skills to manage money. But as much as this is not an ideal situation, it creates an opportunity for young people to learn from the mistakes of their parents or even extended family members.
For instance, my parents never bothered to get a home when I was a kid. We became homeless at a point where my dad lost his job and couldn’t pay rent. So as I grew older, I was certain that I didn’t want to experience the same fate as my parents. I was determined to do things differently by avoiding the mistakes they made.
Another thing young adults can do differently when building their finances is to avoid comparing themselves with others.
We are all journeying at a different pace. Some people can attain financial freedom at age 35, others may get there at age 40. Hence, it’s important that you do not try to compete with people or use their achievements as a yardstick to measure your growth. Instead, be focused on your goals and understand that you have a unique timing.
10 Financial Tips For Young Adults
Now it’s time to get down to business and figure out how you can make better financial decisions as a young adult. Here are 10 helpful financial tips every young adult should know:
1. Learn About Money
Every financial decision you make must stem from your wealth of knowledge on personal finance. This is why it’s important to get financial education.
For instance, if you want to pay off debt successfully, you need to actually learn how to become debt-free in the first place. If you want to invest, you need to learn about the best investment options and how they work. It is the knowledge you’ve acquired that you will practically apply to solve an obvious problem.
Now there are various ways you can start learning about money. From reading personal finance books to listening to podcasts, you can adopt helpful strategies that will improve your financial situation. This is one of the best financial tips for young adults who are completely clueless about how to manage their finances.
2. Avoid Or Minimize Debt
Managing your debt is essential to your financial well-being. It is one of the essential money tips for young adults.
If you allow your credit and student loans to get out of hand, you’ll spend most of your life struggling to become debt-free. This is why it’s advisable to establish a debt repayment plan rather than allowing interest payments to eat deep into your income. The two most common methods for paying off debt are avalanche and snowball.
The snowball method calls for paying off your lowest-interest loans first. You can use this payment to pay off your next smallest obligation after you have paid off your current one. This will help you gain momentum with each payment you make.
The avalanche strategy, on the other hand, focuses on paying off the debt with the highest interest rate since interest increases the cost of debt over time.
This method will help you pay off the most expensive debt first, freeing up more cash to put toward the remaining debt balances.
3. Save And Invest
Given that you still have thirty or forty years until you retire, you may be wondering if you need to start saving and investing right now. But interestingly, being this young is the main reason it’s advisable to start making contributions to an investing account right away. This way, your savings will increase significantly and you’ll be able to take advantage of compound interest.
For example, if you start investing $145 every month from age 25 with an annual return of 8%, you’ll have over a million dollars by the time you are 65. Meanwhile, if you start investing at 40, you certainly won’t get up to $1 million by the time you retire.
Investing doesn’t have to be complicated to begin with. Making contributions to a 401(k) if your employer provides one is another great option. If you don’t have access to a 401(k), you can use an individual retirement account (IRA) instead, and then invest in index funds and exchange-traded funds.
4. Budget Your Money
One of the best strategies for building stronger finances is a budget. It is important that you understand where your money goes each month, and that’s exactly what a budget helps you to achieve.
When you create various spending categories and spread your income across the expenses, it’s easier to determine how you’ve spent your hard-earned money. Aside from your fixed expenses, a budget allows you to account for variable costs and also avoid impulse purchases. This is one of the best financial tips for young adults.
Thankfully, building a budget every month is now easier due to the number of financial tools available. Mobile apps like Mint and YNAB can help plan for your expenses, set reminders for important bills, and automate payments.
On the other hand, if you’d like to learn the basic steps for building a budget from scratch, check out this post where 5 steps have been outlined for budgeting money.
5. Watch Your Spending Habits
Sometimes it’s not about how much you earn. It’s about how much you spend. If you spend recklessly, it will be quite difficult to improve your finances even if you earn a lot of money. But since a budget can help track your expenditure, it’s easier to see when your spending begins to go overboard.
Another way to track your spending is by reviewing bank and credit card statements every two to three months. It’s one of the essential financial tips for young adults.
6. Plan For Emergencies
This is one of the best financial tips for young adults who do not want their finances to crumble all of a sudden.
The truth is that even the best-laid financial strategy can be derailed by unforeseen expenses. For example, while you spend months stabilizing your finances, you may need to make a $700 auto repair. Suddenly, your contributions to your savings and investments are gone, and after the emergency passes, it may be difficult to get back on track.
This is why it’s important to set up an emergency fund to tackle this challenge. This amount of money should be set aside in a separate savings account over time. Besides, it’s advisable to keep three to six months’ worth of spending in the account.
In case of an unexpected medical expense or a broken device in your home, you’ll be able to cover the costs without breaking the bank or getting into debt.
7. Protect Your Wealth
Although a paid-off house, a well-funded retirement account, and a high salary are typical indicators of financial success, you may be missing one vital aspect—protecting your finances.
You can take basic steps to protect your assets or wealth, such as getting insurance or avoiding paying too much taxes on your income. For instance, if an uninsured home is damaged by fire, it may become a significant liability rather than an asset. Meanwhile, this huge loss can be covered by a homeowners insurance policy.
8. Prioritize Your Health
Millions of Americans are spending substantial amounts of money on healthcare, and this situation doesn’t seem to get better. This is why one of the smart financial tips for young adults is to protect their health.
If you are healthy most of the time, you’ll spend less money on medical bills. The best part is that there are simple things you can do to improve your health and avoid unnecessary ailments.
For example, regular exercise, a balanced diet, and yearly physical examinations can all help you stay healthier. By putting these strategies into practice, you’ll improve your quality of life and lower the risk of hospitalization.
9. Understand Your Taxes
No matter how wealthy you get, there’s one thing you can never avoid in America—paying taxes.
As long as you have a business or job that brings in money every month, you’ll be paying Uncle Sam! This is why it’s highly important to be well-informed when it comes to taxation. You should understand how and when to reduce your tax liability, so you don’t spend more than you’re supposed to.
Ideally, you are assigned to a tax bracket based on your salary and other sources of income, which determines the percentage of federal taxes you will have to pay.
Your retirement savings also have special tax implications. A standard 401(k), for instance, uses pre-tax money, which reduces your taxable income while you’re employed. However, when you take money out of your account in retirement, you’ll have to pay income taxes.
Meanwhile, a Roth IRA uses money that has already been taxed by the government. This means when you retire, you won’t pay any taxes on the income from this account.
This is one of the proper financial tips for young adults who want to take tax planning seriously.
10. Work With A Financial Planner
Gaining control of your finances can be a major challenge, especially when you have no idea what to do. However, financial experts can assist you in creating a unique financial strategy to solve your specific problem. This way, you can rely on their expertise and avoid making any mistakes.
But before you go ahead and hire a financial planner, it’s best to learn how they charge clients. For instance, some consultants bill by the hour, while others take a cut of the assets under their management. Finding an advisor whose costs is reasonable for your financial situation is therefore advised.
11. Live Within Your Means (Bonus Tip)
This is one of the money management tips for young adults to stabilize their finances and avoid unnecessary debt. What does it mean to live within your means? It simply means you shouldn’t spend more than you earn.
For instance, if you make $4,000 every month after taxes, you shouldn’t live in an apartment that costs $3,000 a month. It will be impossible to sustain your finances because the expenditure you incur is above your income level. Of course, you may think about using credit cards as a support system. But that will only lead to a bigger problem—debt.
Quick Summary: Financial Tips For Young Adults
There is no denying that growing your finances as a young adult can be challenging. This is because you lack the experience and right skill set to guarantee financial stability. However, despite having very little knowledge of what to do, you can study other successful people’s methods and adopt them to improve your own situation.
For example, you are right here on this page reading about financial tips for young adults. You now have the blueprint. All you have to do is understand these financial strategies and execute them depending on what your situation demands.
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