When you’re young, you’ve just started working, have minimal responsibilities, and finally have some money to call your own. Even with all of the freedom that youth gives, it may also come with some serious financial ramifications that can be crushing if you’re not careful. Many young folks have no idea how to handle their finances. Money, whether inherited or earned, can profoundly alter the direction of one’s life. There aren’t many opportunities for do-overs in life. As a result, everyone must begin developing healthy money and spending habits at an early age.
In this article, I have collated a list of certain bits of money advice for young adults.
- Build self-control:
To keep your finances in order and achieve financial empowerment, the first step is to learn self-control. In the age of credit cards, it is easy to buy anything without actually having the money in your pocket. I’d suggest avoiding doing it and rather spending money when you can afford to do so. You should prioritize where the money needs to be spent and how much. Once you know what is important and what are the things you can let go of, don’t give in to the temptation. Only by learning self-control, you can move forward to other things to ensure your financial stability for a long time.
- Don’t spend on frivolous things:
When you go out to the store or just surf online shopping sites, many things attract your attention. You may not need them but you get the urge to own them. But keep in mind that things you don’t need or have no value addition to you shouldn’t be bought. Such frivolous shopping will only lighten your pocket and when the time comes for your necessities, you may have to skimp there. You don’t always need an expensive dress or fancy showpiece where there are cheaper alternatives. Try to save your hard-earned money and not just waste it away.
- Make a budget:
Setting up a budget is a step ahead toward having steady finance. The first thing to do is to list out all the essentials where the spending money is mandatory like rent, groceries, commute, etc. Once you know how much you are going to spend, then only you can plan your savings. It is advisable that you make a monthly budget that would include everything and then save a significant proportion of the remaining money for the rainy days. For this strategy to work, you need to make sure to stick to the budget firmly.
- Careful with credit cards:
Using credit cards is an easy to do shopping. But you don’t see the money spent right away and when the bill arrives, you are shocked. Using many credits cards carelessly will lead you to suddenly be in debt fast. The solution to this problem is to keep track of money spent, have minimum spending using the credit card, and stay away from it as much as possible. Always pay off your credit bills within the deadline. Misuse of credit cards could lead away from financial empowerment.
- Keep track of spending:
Sometimes you stray away from your budget here and there and don’t realize how much you have actually added to your planned expense. To have an idea about the same, maintain a personal finance book to track your spending. This will give you an idea of how much you are faltering on your budget and how it is affecting your savings ultimately. Once you have written evidence of how much you have drifted, you’ll be surprised at how much a small change in the budget adds up to the cost at the end of the month. This will motivate you to stick to your plan.
- Understand taxes:
Taxes are an unavoidable part of any income. You pay certain taxes to the government which are deducted from your salary. Therefore, once you get your paycheck, calculate how much money you actually have at your disposal after the tax deductions. Only after understanding how taxes work and how they are subtracted from your income, you can make further plans with your money; be it about your expenses or your savings. It is advisable that you do your own taxes, understand its complexities, and be in control of your finances thereon. There are many tax software available online to help you with the same.
- Learn about investment:
The easiest way to invest your money is to save it in the bank. You get minimal regular returns added to your account monthly. But there are much better and high returns giving investment options available. With proper knowledge and guidance, you can invest in the stock market, mutual funds, provident funds, etc. Such schemes help you gain higher benefits than just keeping the money in the bank accounts. To avail yourself of the greater benefit and understand how such markets work, you need to first get a grip on their workings by gaining substantial knowledge about them.
- Have savings:
You definitely have bigger plans which go beyond your daily life. You might want a bigger house, a nicer car, or an amazing holiday. All of these require a large sum of money which is not possible to earn overnight. For all such future expenses, you need to have a good amount of regular savings with the aim that one day you’ll have enough money to get all that you have planned. Not to mention unexpected monetary emergencies; for this as well it is crucial for you to start saving as early on as possible. Start saving with a small portion of your income which will gradually increase.
- Get insurance:
You should have an insurance scheme set for you keeping in mind the long-term plan for life. The important insurances to have are life insurance and health insurance. These insurances ensure that you are insured when there is any emergency. Starting these insurances in your 20s will mean that you will have to pay a lesser premium in comparison to starting your insurance much later. Sometimes the companies you work for, offer you such privileges. Otherwise, you can avail such insurances from outside agents as well.
- Make a retirement plan:
Having a retirement plan is very essential if you want to be financially independent. Contributing to a retirement plan ensures that you reap the fruits of these savings at your golden age and enjoy life without worrying about the money. The earlier you start saving for the same, the more the benefit you are going to receive as a result of compounding interest. It is wise to opt for a company-sponsored retirement plan. Otherwise, there are also many options like opening your own IRAs for the self-employed.