12 Important Financial Planning Tips for Young Adults
In the US alone, only about 24% of young adults are financially independent. The majority of Americans feel that young adults should be independent by 22, but very few hit it at this age. Even more disconcerting is that a majority of them are financially vicarious.
According to a study, over 75% of young adults lack financial literacy and money management skills. Now, to get your head in the game and learn how to manage your money, you need to learn a few things about personal finance. Additionally, working with investment managers from Avior Wealth Management could help you figure out the best way to manage your assets.
In this guide, we’ll learn the top 12 financial planning tips that you must know as a young adult.
- 1 1. Get a Credit Card and Pay It off on Time Every Month
- 2 2. Save at Least 10% of Every Paycheck into an Emergency Fund
- 3 3. Make Sure Your Retirement Is Set Up Properly
- 4 4. Don’t Spend More Than You Bring-in
- 5 5. Be Aware of Your Credit Score
- 6 6. Have Multiple Sources of Income
- 7 7. Don’t Fall for “Get Rich Quick” Schemes
- 8 8. Start Investing Early
- 9 9. Don’t Get into Debt Unless You Have to
- 10 10. Invest in Yourself
- 11 11. Get on Top of Your Bills
- 12 12. Create a Budget
- 13 The Best Financial Planning Tips for Young Adults
- 14 Author
1. Get a Credit Card and Pay It off on Time Every Month
A credit card is the easiest way to establish a good credit rating. Once you have a credit rating, it’s easier to get loans and buy a house when it comes time for that. Plus, if you ever need to make a large purchase and don’t have enough cash, a credit card will allow you to do this without going into debt.
This is the advice you would likely get from professionals like the Queen of Money Mindset, a coach specializing in money matters. Acquiring a credit card is a big responsibility, and having the right information to make a choice is crucial before you apply.
One of the first financial planning tips involves applying for a credit card and making sure you can responsibly manage it. Before applying for your first card, research what kinds are available in the market to match your needs.
Determine how much of a credit line you want and which APR works best for your budget. It’s recommended to apply for one card at a time. This way, you won’t get carried away using more than you can afford to pay.
2. Save at Least 10% of Every Paycheck into an Emergency Fund
There’s nothing worse than an unexpected expense sending you into debt when you’re just starting out in the workforce. About 4 in 10 Americans can’t afford a $400 emergency, and this is a group you’d rather stay away from. For this reason, don’t put your entire paycheck into your checking account or any other savings account that could be easily accessible.
Instead, set aside some money every month into a separate, high-yield savings account that you can access immediately in case of emergencies. An unexpected car accident or medical bill will ruin even the healthiest budget. Over 40% of Americans are a paycheck away from poverty, and you’re too young to venture into that road too.
That’s why it’s important to have at least 6 months of living expenses saved up if something comes up unexpectedly. When misfortune strikes, this fund will keep you from taking on additional credit card debt, so start saving immediately.
3. Make Sure Your Retirement Is Set Up Properly
Retirement is something that might seem far away, but it’s important to start investing in your future early on. Traditional retirement accounts like 401(k)s are tax-advantaged. This means you can save a lot of money by putting some of your paychecks into one once you’re ready to retire.
Additionally, if you have a Roth IRA, you can withdraw your earnings at any time without penalty.
One mistake many young adults make is not putting enough money away for their retirement accounts, which means they’ll have nothing to live on when they stop working full-time. However, if you start stashing at least 10% of your paycheck into an IRA, you’ll be well on the way to having enough for retirement.
4. Don’t Spend More Than You Bring-in
This is one of the best financial planning tips because if you’re not careful, it leads to over-spending and debt.
Many young adults don’t know how much they spend each month because they swipe their cards without thinking. However, it’s important to keep track of where your money is going so you can see whether or not you’re spending too much here and there.
Before making any purchase, take a look at your checking account to make sure you actually have the money for it first. It can be tempting to buy things like clothes and gadgets when you don’t have the money, but it can lead to a snowball effect of debt that will be hard to pay off.
One great way to keep track is by using financial planning apps. These apps let you see your income, expenses, bills, and other financial statistics in one place.
5. Be Aware of Your Credit Score
Your credit score is essentially a numerical representation of how financially responsible you are. Lenders use this number to determine whether or not you’re a safe bet when it comes to taking out loans. That said you can still get loans without credit history so don’t worry if this applies to you.
If your score is low, lenders may refuse to give you credit or offer you unfavorable terms. When applying for new cards, this number will also be taken into account.
6. Have Multiple Sources of Income
When you’re young, it’s important to have multiple income streams so you can save as much money as possible. One way to do this is by starting your own business. It doesn’t matter if you want to be an entrepreneur or work for someone else, just make sure that the source of your income is reliable.
Besides, jobs aren’t the only way to make money these days. There are countless ways to make some extra cash, like running a blog or selling handmade goods on Etsy.
You can sit or walk pets and start a YouTube channel. Don’t be afraid of trying something new if it means earning some money on the side.
7. Don’t Fall for “Get Rich Quick” Schemes
Since you’re young, many people will come to you with the promise of becoming rich overnight. However, these are almost always scams. Not only that, but they are a waste of your time and money.
It’s easy to get sucked into buying things like secret wealth formulas, but the only ones who make money from these products are the people selling them. If it sounds too good to be true, then it probably is.
8. Start Investing Early
Investing is a great way to make your money work for you. With the right investments, you can potentially earn more than the average savings account interest rate and get ahead of everyone else. Of course, there’s also the possibility for loss depending on what kind of investment product you pick, so it’s important to do your research.
One way to start investing is by opening up an investment account. Financial management when investing is not necessarily easy, so don’t be afraid to speak with professional investment managers and get financial help. Another option is to invest in exchange-traded funds (ETFs).
These are basically groups of stocks that mimic the behavior of broader market indices. Of course, there are many types of investments, so talk to your financial advisor and choose the best ones depending on your risk tolerance.
9. Don’t Get into Debt Unless You Have to
Many young adults are eager to build up their credit history, but this can turn into a bad habit if they rack up more credit card debt than they can handle. The best way to build your credit is by having one or two small loans every few years, not opening six different lines of credit and maxing them out.
It’s also important to stay away from loans that seem too good to be true, like payday or car title loans. These can end up costing you a lot more than you bargained for due to the high-interest rates and fees they charge. Instead of getting caught up in debt, try finding ways to cut down your spending and save up some money until you can afford what you need.
10. Invest in Yourself
One of the best financial planning tips you’ll ever come across involves investing in yourself. No matter how much you make, it never hurts to invest a little bit in yourself. If you’re willing to work hard and put in the time, then you can learn just about anything if you have the resources available to you.
There are countless ways to invest in yourself, including going back to school or learning a new skill. For example, if you’re interested in personal finance, then consider taking some online courses or checking out a book from the library. The possibilities are endless.
11. Get on Top of Your Bills
When you’re young, bills are often the last thing on your mind. After all, you have time to figure things out later, right? However, if you don’t keep track of what’s due when and how much it will cost you, then you could find yourself in some pretty hot water with collection agencies or cut off from basic services.
That’s why it’s important to start getting into the habit of paying your bills immediately. This will keep you from incurring late fees, which are another way of wasting money. If you don’t know where your money is going, then there’s no way to make more room in your monthly spending allowance.
A great way to do this is by setting up automatic payments for your monthly expenses. This is a great way to stay on top of things, so you don’t have to worry.
12. Create a Budget
Even though you’re young, it’s important to start monitoring your spending habits. That way, you can take control of your money and figure out whether or not you’re overspending in certain areas. Creating a budget is basically one of the best financial tips you can come across.
One of the most basic ways to create a budget is by listing everything that you buy throughout the month and categorizing it. This will force you to see how much you spend in each area (i.e., rent, transportation, food) and make it easier for you to come up with ways to save money in the future.
Get your hands on the best budget planner and get your money on track while you’re still young.
The Best Financial Planning Tips for Young Adults
By making smart choices and investing in yourself, you can get on top of your finances and start building wealth. It won’t happen overnight, but it’ll be worth it with these financial planning tips.
If you are looking for more help or are interested in buying some products to help boost your financial knowledge, visit our blog section today.