Since managing your own finances is not taught in school, many youths have no idea how to go about being financially responsible when they turn 18. It can be very difficult for them to know what to do and how to go about being on their own without proper financial education and because of this, many young adults end up in serious debt or squandering their money on unnecessary items which will leave them rather short in the future. However, learning how to handle your own money is very simple and can be done by anyone with just a bit of self-restraint and practice.
Here are 8 financial tips for young adults to help you learn and understand more about money for the future.
Financial Tip #1 – Budgeting
Before you can spend any money, you have to know exactly how much money you have to spend. This may sound simple enough, but you’d be surprised how many young adults don’t budget their money. Budgeting your funds allows you to have a clear picture of exactly how much you have coming in, how much you are able to spend and how much you will end up having left over and this is a crucial part of managing your finances well. In order to start budgeting, write down all the income you have coming in per month. Then write down all the bills you have to pay per month including rent, utilities, car payments, insurance etc. The remaining portion of your money should then be divided up between necessities (such as food, gas, clothing etc), debt payments and savings. This way, you’ll know exactly how much money you’ll have left over for the “luxuries” and you’ll have all your bases covered in case something happens.
Financial Tips #2 – Self Control
One of the biggest problems that young adults have when it comes to money, is that they typically want what they want, when they want, with little or no regard to the consequences of their financial standing as a result. It is important to learn to live below your means, which basically means, don’t spend more than you can earn. Just because you have reached legal age and you are eligible for credit cards, doesn’t mean you should go and max them out. Be aware that you have to pay interest on these items and debt does add up, making it more and more difficult to pay off as time goes on. Delayed gratification goes hand in hand with keeping self-control. After all, do you really want to pay interest on a pair of jeans or a case of beer? If you don’t pay your bill in full at the end of the month, you could very well still be paying for these basic items for years to come.
Another issue with young adults is that they are often quite neglectful when it comes to their credit score. Make sure you get into the habit of making regular payments on your credit cards and paying down any large debts or loans. Remember, it is much easier to maintain a good credit score than it is to build your credit score back up after it’s been negatively affected.
Financial Tip #3 – Start an Emergency Fund
Most young adults have a very present mindset, meaning that whatever they have now, they will have in the future. After a few years, they will end up realizing that things always come up and it’s best to start preparing for those unexpected expenses now while you still can. Once you have a job, you should try allocating some of your pay check to an emergency savings account. In this emergency fund, you should strive to have roughly 6 months of your basic expenses covered just in case you lose your job, or something comes up that you wouldn’t be able to take care of otherwise. A 6 month emergency fund is a very good idea, however, most young adults don’t prepare that far into the future and just try to deal with things as they happen. This might work for a while, but why not have an extra few grand in the bank just in case? This way, even if you need a new car because your old one broke down, you can go out and purchase one without having to worry about how you will be getting to and from work. Try to put your emergency fund into a high interest savings account so you get the most out of your money and less of it will be eroded by inflation.
Financial Tip #4 – Get Educated
When I say “get educated,” I’m not talking about going to school (although for many, school is a good idea). I’m talking about getting educated about basic finances. Money is an important part of life and the more you know about it, the more likely you are to getting more and keeping more. Remember the old saying “A fool and his money are soon parted”? Instead of taking advice blindly from your relatives, friends, or even financial advisors, read a few books and find out what would work best for you and your life. This way, when you do end up getting advice, you can decide for yourself if it’s good advice or bad advice and whether or not you want to follow it. This also leaves you and you alone in complete control of all your finances instead of handing over all control to someone who might not understand your specific situation or what you are looking for, therefore leading you the wrong way (for more information, check out Managing Your Own Finances). Getting educated about investments is also a great idea so that when you are ready to invest, you will have the knowledge to back you up and therefore have a much greater chance of profiting.
Financial Tip #5 – Think About Your Retirement Now
While most people start thinking about their retirement in their 30’s and even 40’s, those who end up retiring early start thinking about it as soon as they begin working. This way, even if they don’t end up retiring early, they can almost sure to retire at 65 because they set their sights on it and made serious steps towards achieving this goal. There are many ways to go about working towards your retirement including RRSP’s (for more information, check out What is an RRSP?), mutual funds, stocks, commodities, real estate, businesses etc. Again, this is why it is important to educate yourself so that you can find out what would work best for you. You may find that you like more than one method of retiring and end up diversifying for increased odds. Whatever you end up deciding, try to think about your retirement now by setting aside even just a little bit of money into whatever retirement form you think is best.
Financial Tip #6 – Guard Your Health
As a young adult, many people take their health for granted, thinking it will always stay. This is not the case as accidents happen, or even as age starts to set in. Trips to the doctor or hospital can end up costing you quite a bundle, even little things such as a couple cavities can cost hundreds of dollars to get filled. As a result, it may be a good idea to get health insurance. Most full-time jobs have benefits you are eligible for after 3 months of continuous work but even if you don’t have a full-time job, you might still want to look into getting covered, just in case. There are many institutions available and you can get the minimum coverage which is very affordable and will help you sleep at night knowing that your basics are covered, should anything happen to you. For those with specific needs (even something as simple as vision wear), make sure you are getting health benefits to cover these needs as well.
Financial Tip #7 – Don’t Give Into Peer Pressure
Many young adults respond greatly to peer pressure and this can cause a conflict when it comes to managing your own finances. Some of your friends may want to give you advice, or borrow some of your money or pressure you into going out all the time and spending any cash you might have. You may feel like you’re just having a social life, but be sure you know where to draw the line. Don’t be afraid to say no if it doesn’t fit with your budget; after all, you’re the one who won’t be able to afford food and gas afterwards because of this so protect your finances and do what’s right for you.
Financial Tip #8 – Be Consistent
Working towards setting your life on a better financial future can be gruelling and you may want to quit, but you’ll only succeed if you end up working at it constantly and making a habit out of it for the future. It only takes one spending binge to set you back months or even years, so try your best to stay on course.