Whether you’re a recent grad starting your first job or still in school and planning for the future, it’s never too early to start thinking about your personal finances.
After all, the earlier you start taking control of your money and managing it responsibly, the sooner you can take advantage of all the amazing opportunities that come with financial stability.
It might feel intimidating to start learning about personal finance, but there are some key tips that can put you on the right track. To help you get started, here are ten (10) essential personal finance tips that young adults should keep in mind:
1. Create a budget and track your expenses.
The 50/30/20 rule is a classic budgeting technique that can help you allocate your income. Basically, it suggests giving 50% of your income for essential expenses like rent, groceries, utilities, etc., 30% for discretionary spending (like eating out or shopping), and 20% towards savings and investments. Of course, you can tweak these proportions to better suit your goals. Just make sure to stick to your budget so you can maximize your financial resources and reach your goals faster.
2. Set financial goals.
Take some time to think about your short-term and long-term financial goals, and create an action plan with specific steps and deadlines that will help you get there.
For instance, if you aim to save $10,000 for a car in two years, break that down into smaller, more achievable goals. Put $417 monthly into your savings account and track your progress. Knowing what you’re working towards and understanding how to get there can keep you motivated and focused on achieving your long-term objectives.
3. Build an emergency fund.
Unexpected expenses can quickly throw your budget off balance. That’s why it’s important to set aside emergency money to cover any unforeseen financial hardships like job loss, medical bills, or home repairs without relying on debts or loans with rising interest. Ideally, you must save at least three to six months’ worth of living expenses and keep it in an easily accessible account.
4. Pay off debt on time.
Debt can be a real burden, especially if you don’t have the right payment plan in place. Making late payments can incur additional fees and damage your credit score, which could keep you from getting approved for future loans.
To avoid any of these issues, make sure to pay off your debt on time every month. If you’re feeling overwhelmed by the amount of debt you have, try to prioritize it by interest rate—start by paying off the debt that charges the highest interest first.
5. Generate multiple streams of income.
One of the best ways to boost your finances is to make extra money on the side by generating multiple sources of income. This could include a side hustle, freelance work, or even starting a business. By diversifying your income, you can increase your earning potential and have more money to put towards savings or investments.
6. Invest early and often.
The earlier you start investing, the longer your investments have to grow and benefit from compound interest. Plus, even if you can’t contribute a lot of money right away, the power of compound interest over time means that even small investments have the potential to make a significant return.
7. Automate your investments and savings.
Automating your savings can prevent you from being tempted to spend your money elsewhere and make sure you’re consistently contributing to your long-term goals.
So consider setting up a recurring transfer to move money from your checking account into savings or investment accounts simultaneously each month.
8. Use credit cards responsibly.
While credit cards can be incredibly useful for building your credit score, they come with potential risks if not used wisely. Avoid racking up big bills, and try to pay off your balance in full each month to steer clear of debt traps. Ultimately, keep in mind that your credit card is not free money— you should only purchase what you can actually afford and pay the bill on time.
9. Save for retirement now.
Retirement might seem like a long way away, but the sooner you start saving for it, the better off you’ll be when that time comes. For example, if your employer offers a 401(k) matching program, maximize it by contributing at least enough to get the full match. This is essentially free money that can dramatically increase your retirement savings over time. Alternatively, you can also open an Individual Retirement Account (IRA) to build up your nest egg for the future.
10. Educate yourself.
Personal finance can be complex, so staying informed of the latest tips and strategies is essential. Learn about different types of investments (stocks, bonds, mutual funds, and ETFs) and how to invest responsibly. Read up on financial topics, listen to podcasts, or take an online course to help you become more informed and make smarter financial decisions.
When it comes to personal finance, there’s no one-size-fits-all approach. What works for one person might not work for another. So keep these ten tips in mind as you develop your own financial plan, and remember to adjust it over time as your goals and needs shift.
With the right plan and some discipline, you can take control of your financial future and start living the life you’ve always dreamed of. Good luck!