The younger you are, the more time your money has to grow.
It’s a shame that most high schools don’t offer a course called “Finance for Young Adults,” as this deprives many young people of the knowledge they need to manage their finances, apply for credit, and stay out of debt. Despite some progress—by 2022, having completed a personal finance course will be required in 23 U.S. states for high school graduation, and in 25 additional states—there are still large knowledge gaps in this age group.
Young adults must also learn important financial lessons throughout the crucial years following high school, but at least a fraction of the next generation should benefit from basic economic and financial education in high schools. Learn more about how to start handling your funds in your financial life right immediately.
The earlier you start learning how to manage your money, the better your chances are of being financially successful throughout your life.
There are eight actions you can take right away if you’re just getting started in order to safeguard your financial stability, begin saving, and amass wealth over the course of your lifetime.
1. Use cash instead of credit.
2. Learn about your finances.
3. Learn to budget.
4. Get an emergency fund going.
5. Start saving for retirement early.
1. Use cash instead of credit and exercise restraint.
If you’re lucky, when you were younger your parents taught you the value of temperance. If not, keep in mind that the sooner you form the habit of managing your own cash, the sooner you will gain the critical life skill of delaying satisfying your desires.
In order to practise financial restraint, one of the most important strategies is also one of the simplest. If you wait to make any regular purchases until you have enough money saved up, you can use a debit card instead of a credit card.
Unless you can afford to pay the balance in full each month, which will be deducted from your checking account immediately, a credit card is actually a high-interest loan (and without any additional fees).
If you develop the risky habit of charging everything you buy, you might end up still having to pay for a pair of jeans or a box of cereal in ten years in addition to the interest you would have paid.
Credit cards are undoubtedly helpful; some of them have excellent rewards, and using them responsibly can help you increase your credit score. The key is to use them to your advantage rather than the lender’s, who profits from your bad habit of accumulating interest-bearing balances. Use credit cards only in an emergency, and make sure to pay the balance in full when the bill arrives. Furthermore, avoid accepting every credit offer that comes your way and carry more cards than you can manage.
2. Learn about your finances.
If you don’t learn how to manage your money, others will find ways to do it for you. Some of them, such as deceptive financial planners, may have malicious intent. Others may have the best intentions but may be unaware of your situation, such as relatives who offer general advice on the value of owning a home even if the only way you can currently afford to do so is through a risky adjustable-rate mortgage.
Rather than relying on unqualified strangers for advice, take control of your financial future by reading a few basic books on personal finance. Maintain your course once you’ve gathered the necessary information.
3. Learn to budget.
After reading a few personal finance books, you will understand the significance of two rules that every personal finance counselor repeats. Maintain constant awareness of where your money is going and avoid allowing your spending to exceed your revenue. The best ways to accomplish this are to budget and create a personal spending plan to keep track of your income and expenses. Realizing how much it costs to get coffee from a barista every morning for a month can be a helpful wake-up call once you start keeping track of how much money you spend. Small changes to your regular expenses, such as brewing coffee at home, are entirely within your control and can have the same impact on your financial situation as a pay raise, which is mostly out of your boss’s hands.
Over time, you can save even more money by trying to keep your bigger monthly expenses, such as rent, as low as feasible. Even if you can currently afford a luxurious apartment, selecting a more basic residence and saving the money you save could enable you to purchase a home or condominium far sooner than your high-rent friends.
4. Get an emergency fund going.
Setting up money for unforeseen costs and future expenses is referred to as paying yourself first. One of the most popular proverbs in personal finance is this one. This simple technique not only helps you stay debt-free but also makes it easier to fall asleep. No matter how much you owe in student loans or credit card debt or how little money you make each month, there are ways to put at least some of your monthly salary into an emergency fund.
Additionally, if you develop the practice of routinely setting money aside for savings, you will stop thinking of saving as an option and instead start thinking of it as a necessary monthly investment.
5. Start saving for retirement early.
Just like your parents sent you off to kindergarten to prepare you for success in a world that seemed to exist in the distant past, you need to start making plans for your retirement right away.
A fantastic way to get started in the right direction is to educate yourself on the wonder (and, some might argue, power) of compound interest. When you do, it will be clear why you should begin saving as soon as possible for retirement. Simply explained, compound interest is “interest on interest,” meaning that in addition to the principal (the money you put in), you will also get interested in the interest (the money the bank pays you for holding your principal).
Particularly excellent options include retirement programmes provided by your employer. Many employers will match a portion of your gift, essentially giving it to you for free. You can contribute pretax money, which lowers your income tax. Individual retirement accounts (IRAs) have lower contribution caps than 401(k)s, but if you’re fortunate enough to have access to one, you’re already one step closer to financial stability.
Don’t lose hope if you can’t use the company plan. Retirement plans can be made in a variety of ways for self-employed individuals.
