Do you wish that your parents had taught you more about money when you were younger? Maybe they did, and maybe it didn’t sink in.
Regardless of what happened with the past, now is the time for you to get ahead financially. If your parents haven’t given you a head start on teaching financial literacy skills – or if their lessons are confusing – this article will help.
It offers specific steps that every young adult should take to build a strong financial future. The sooner you get started, the better off you'll be!
Step 1: Commit to Change.
You know you need to change your financial habits, but it's hard. Maybe you haven't had a chance to handle money or develop a sense of its worth.
Regardless of your ingrained habits or lack thereof, the best way to get started is by committing to the idea that this time will be different.
You've probably heard this before – but it's true! You can change your money habits. And if it seems hard now, you'll be thrilled when things start to get easier.
Step 2: Learn the Basics of Money Management.
If money management
means nothing to you, that’s okay! It doesn’t have to be scary.
You’ll soon know money terms such as:
- money in vs money out (this is the difference between your money spent and money earned)
- balance sheet (a listing of assets, liabilities, and owner's equity)
- cash flow statement (showing the sources/uses of cash for an organization)
- money market fund (an investment vehicle that holds money in short term, safe securities and is considered liquid money)
- high-yield investments (investments which earn a high cash return or investment return)
Step 3: Make a Budget.
In order to get ahead financially, you must learn to manage money effectively. This starts with understanding what your money goes toward every month.
There are dozens of financial management
tools and apps, but a simple way to get started is to create a budget.
A lot of young adults (or people in general) think that money management means being extreme or cut off from the rest of life – this couldn't be further from the truth!
Budgeting is simply about knowing where money goes. And it's not as hard as you think!
For example, maybe you spend money on going out with friends regularly. Maybe instead of cutting back on this, you could find a way to make money at the same time (e.g., playing gigs or selling things). This way, your money management plan stays flexible and works with your lifestyle.
Remember also that money management isn't always about money! You could just as easily create a budget to track how much time you spend on schoolwork, exercise, or socializing in order to be well-rounded. The point is to understand where your money goes and make it work for you, based on the money management skills you learn.
Here are some money management tips for young adults:
- Get organized. The key to money
management is finding a system that works for you, so make sure that your budget stays in one place – whether it’s on your computer or paper.
- Start small and simple. First, make sure you know what money comes in and out of your account. Then, start keeping track of money with a simple spreadsheet or money management app.
- Think about money as time. One helpful tool is to think about money as currency – just like time! With money, you want to decide what money can do for you – it’s the same concept of time.
- Look out for money leaks. These are money that just goes to waste, like unused shopping points or money from gift cards. Force yourself to use them up!
Step 4: Get Your Credit Score and Report. Then Improve Them!
A good credit score is critical for young adults to get a strong financial start in life. This money tip is about money you want now, money you want to borrow in the future, and money you want to save for your retirement. This money tip is about all of that since it applies to money at every stage of life!
A credit score allows other financial institutions (like a bank) to gauge whether or not they will lend money to you. And with good credit scores, young adults can get low interest rates on loans they might need – like money for a car loan or student
So what is a credit score? Credit scores are based on how you manage money. It’s a number that indicates how risky it is for someone to lend money to you because they’re not sure if you’ll pay it back. If you pay money, on time, every month (think money through rent and utilities), then that’s a good example of managing money well. In addition to money management, young adults with good credit scores have many other positive money habits – such as having a bank account open for more than one year and consistently paying their cellphone bill on time. If you opened a banking app for minors
, which possibly came paired with the best debit cards for teens and kids
, this could have a positive impact on your credit history.
The most common way for young adults to find out what their credit score is is by getting access to their free credit report
. A report includes three important things: the consumer's name, addresses he or she has lived at in the past 7 years, and detailed information about his or her money history – including any loans or debt payments. If something looks fishy, young adults can check it out and dispute any money that isn't correct.
There are many money management mistakes to avoid when managing money in your early 20s. For example, young consumers should steer clear of money scams from money lenders or debt collectors. Consumers should never give money lenders money upfront for a promise of big returns later on – this is the classic scam! Additionally, young consumers should not hide their money problems from their family members or friends because they need help before things get worse!
You'll want to take time now (when you're young) to manage money well and be on top of money management because money issues don't just disappear when you become a senior citizen!
Step 5: Build an Emergency Money Fund
We should all plan for several money situations, especially an emergency. An emergency fund is money that can be used immediately in case something bad happens, such as money to pay the hospital bills if someone gets hurt or money to replace the car if it’s stolen. For young adults, this money will probably come from savings. Prepare for an emergency by saving at least three months' worth of income in your bank account (including money earned through part-time work). It might sound like a lot but think about how much money you spend every month on food, clothes, money for going out, money for your car, money to travel, money for your cellphone. That's why young consumers should be careful not to go on buying sprees just because they get money from a refund or gift!
After saving three months worth of money in your bank account, young adults can save up additional money by paying themselves first. This means that young adults should consider money set aside as a reward – it is their savings and it will help them have emergency money available if needed. How can you pay yourself? You can put money into an online savings account.
As your money situation improves, young consumers can invest in passive income ideas
to grow their money further. This money should be used for supplementing their income and building a diversified income portfolio to mitigate future financial emergencies. These cash flowing investments
can prove beneficial investments for young adults
Step 6: Start Saving For Retirement Early
College students might not realize this now but chances are that they will probably work many years after college ends if they want to retire one day. So why not start saving money for retirement right now so money can grow through the years?
There are two money moves young adults should make in order to save money for retirement: money they set aside as a reward for themselves (money saved could go into their online savings account) and money that's automatically transferred from their checking accounts to their investment accounts. Young adults should consider money set aside as a reward money to be saved for retirement. This money can be used to supplement money they put into their online savings account and money put into their investment accounts.
Young consumers who have just graduated from college or are still in school might want to start investing in stocks, bonds, mutual funds, index funds
, ETFs (exchange-traded funds), or other similar products that give young adults the capability of having money grow over time through compound interest and dividends. Some companies offer great money ideas for young people; some companies even allow Roth IRAs for kids
if they have earned income. These accounts are the best custodial accounts
because they allow children to take advantage of low tax rates now to have their retirement assets grow tax-free over multiple decades. These accounts give young investors opportunities to build up their money over time as well as earn money through its dividend rates. Money invested now will grow significantly over multiple decades.
Step 7: Make Money Moves For Home Ownership
It’s better for young adults who live on their own or plan on moving out of their parents’ homes to make money moves for home ownership. It is a money move that young adults should start thinking about when they are in their early twenties (in order to help them save money), mid-twenties, and late twenties so they gain ownership the moment they become eligible!
There are many money choices young people can consider such as interest rates on mortgages, money available for down payments, money available from family members for down payments, money for closing costs after purchasing a house, etc. There are also many different ways homeownership can be financed. The most common way is through an FHA loan; another method involves getting private mortgage insurance
which may allow young consumers to get as low as 3.5% down payments. A money move young people can make for home ownership is to build money equity in their homes over time through money earned from money spent on monthly mortgage payments and money they save by paying less interest on their money borrowed for mortgages. Additionally, young consumers should consider allocating money saved toward renovating their houses; they may get tax benefits
if the renovations are for improving energy efficiency or health safety (e.g., installing new windows, replacing old electrical outlets with GFCI outlets).
Step 8: Invest Money in Yourself
A big part of investing money is about investing time in yourself – attending school, taking money courses, getting money advice from money experts – all of these things come with a price tag. So young consumers should consider money they spend on money-related topics an investment in themselves because it can help them get better jobs or make more money!
Young adults should also think about saving money for educational purposes. Young people who are passionate about pursuing a college degree or another form of postsecondary education (such as training) should consider investing money while they’re still young because time is on their side. As you can see through this blog post, there are money moves young adults can make over the course of their money lives to help them get ahead financially. By making these money moves, money and money advice can be brought into young people’s money lives early so they understand how to manage money well as they get older!
A big part of investing money is about investing time in yourself – attending school, taking money courses, getting money advice from money experts – all of these things come with a price tag. So young consumers should consider money they spend on money-related topics an investment in themselves because it can help them get better jobs or make more money! Young adults should also think about saving for educational purposes by making small investments now so that when the time comes to pursue their dreams and passions, they are ready to do so without worrying about how much this will cost them. By thinking ahead and considering what steps you need to take today to prepare your future self for tomorrow’s challenges, you may be able to avoid some financial setbacks down the road!