Financial Tips for Young Adults (Part 1 of 2)
Unless you took accounting or finance classes in high school or college, you may, unfortunately, not know how handle your money once you graduate. Since personal finance isn’t a required subject, most students have no idea how to budget their money when they’re out in the real world for the first time.
Learn to Delay Gratification
Hopefully, your parents taught you self-control when you were a child. If not, you really need to learn to delay instant gratification quickly to avoid some major pitfalls. The sooner you figure this out the better, and you’ll be able to keep your finances in order. It’s easy to get credit cards and make purchases online as soon as you see something you want, but it’s much better to save up for what you want and then make the purchase.
Want to pay interest on clothes, electronics, or food? It’s not good to purchase everything with your credit cards, as you may be still paying for them 5 or 10 years down the road. Credit cards are convenient and you may like the rewards they offer, but a good rule of thumb is to pay the balance in full each month and don’t go over 35 – 50% of your available credit.
Control Your Financial Future
You don’t want to take financial advice from a parent or relative that isn't financially savvy. Learn to budget and manage your own money, and be in control. Don’t let other people mismanage it for you. There are some commission-based financial planners that have their best interest in mind, not yours.
Be proactive and take a class on personal finance and/or read some books to gain the knowledge you need. Knowledge is power, and once you have control of your money, you are in control of your destiny. Understand how money works and you’ll be able to start making your money work for you.
Know Where Your Money is Going
Now that you’ve learned about managing your money, you’ll know how important it is to make sure your monthly income is more than your monthly expenses. This is where a budget comes in. I know some people have negative thoughts about budgeting, but it's the best tool to keep track and manage your money. You also want to make sure you add in a column for fun, because if it’s too strict, you won’t follow it. Another benefit of budgeting and keeping your expenses low is being able to afford to buy a nice condo or house sooner than you think.
Be Prepared for Emergencies
One of the first things I learned many years ago, is to always pay yourself first. The best habit you need to develop is to start a savings plan, and it’s even better if it is an automatic transfer per pay period that you don’t think about. Regardless of how much your expenses are, how low you think your salary is, you need to save money in your emergency fund every month.
Get into the habit of saving money every month no matter what; you’ll soon have more than just emergency money saved up. You’ll have vacation money, retirement money, and maybe even money for a home down payment.
You’ll want this money to be in something that provides compound interest, so your money will grow. There are online savings accounts, certificates of deposit, or even a money market account. Putting your money in a high-interest account will keep inflation from eroding the value of your savings.
Stay tuned for Part 2 next week!