You probably feel like there are a million things you need to know about money, financial planning and financial tips. There are so many numbers and specific terms you don’t understand, it can be overwhelming. However, it’s not as scary as it seems. Financial literacy is important for everyone at any age, but the earlier you start learning about money management and investing, the better off you will be in the long run.
Whether you are just starting to think about your future and finances or have been trying to save up some cash for a while now, this guide has great advice on how to manage your money as a young adult. We will discuss various topics such as; how to get out of debt fast, what are the best savings accounts for young adults, where should you invest your money if you’re under 40 years old, what are the best financial tips for millennials and much more…
Best financial tips for Millennials
1. Practice self-control
If you’re lucky, your parents taught you self-control when you were a kid. If not, keep in mind that the sooner you learn the essential life skill of delaying gratification, the sooner you’ll keep your finances in order as a matter of habit.
The most important part of financial planning is self-control; you need to be able to control your spending and make saving a priority. If you are not able to practice self-control when it comes to spending, it will be very difficult to get out of debt, build up an emergency fund, or save for retirement. This doesn’t mean you can’t ever spend money. However, you need to be able to control your spending and avoid unnecessary spending as much as possible.
This includes getting rid of your credit card(s). If you are serious about getting your finances in order, you need to cut up all of your credit cards. You probably have been told time and time again that you should do this, but there is a reason for it. Credit cards can be a huge temptation and can lead to unnecessary and harmful debt if you are not careful.
2. Educate yourself on personal finance
If you don’t learn to manage your money, then other people will find ways to mismanage it for you. Some of these people could have bad intentions, like unscrupulous financial planners. Others may be well-meaning, but not fully informed about your circumstances, like relatives who make blanket recommendations about the importance of owning your own house, even though the only way you could afford to buy right now would be taking on a risky adjustable-rate mortgage.
Instead of relying on random advice from unqualified people, take charge of your financial future and read a few basic books on personal finance. Once you’re armed with knowledge, don’t let anyone get you off track, whether it’s a significant other who syphons off your bank account or friends who want you to go out and blow tons of money with them every
3. Learn how to budget using the 50/30/20 rule
The 50/30/20 rule is a good way to create a budget and get your spending under control. This budgeting method is great for beginners, especially if you are trying to get out of debt. It is designed to help you manage your money better and set financial goals. There are three categories you need to figure out for your budget – fixed costs, variable costs, and savings.
Fifty per cent of your money will go toward essentials (fixed costs) these are bills and expenses you must pay every month such as housing, food, and transportation. Thirty per cent is then put toward wants for the month (variable costs). Think of this as your discretionary money that you can use for things like your daily coffee runs or weekend adventures. Dedicate the last 20 per cent to your savings. Worry about this category after you pay for your essentials, but before you dip into your discretionary money. This will allow you to spend confidently, knowing you’ve taken care of all your financial responsibilities for the month.
4. Start an emergency fund
Every young adult should have an emergency fund to help with unexpected expenses. Ideally, you should have about 3-6 months of living expenses saved up in an emergency fund. It’s critical to prioritize your financial stability by establishing an emergency fund that you can fall back on if needed. Regardless of how low your salary is or the amount of credit card debt you’ve accrued, always make sure to save a portion of your income for an unexpected rainy day, as a general rule of thumb, aim to save around 3-6 months’ worth of income.
With those savings nestled away, you can sleep more comfortably knowing you’re prepared for any potential financial troubles that may come your way. Once you have a basic emergency fund saved up, start saving towards other financial goals.
5. Start investing
If you have some free time over the weekends, or even during weekdays, start reading about mutual funds and educate yourself regarding how the financial instruments work. Once you feel confident, start a SIP (Systematic Investment Plan) of a very little amount and invest in mutual funds according to your profile. As you see your money grow over time, you will feel confident in achieving your goals faster. You can invest regularly in any of the many platforms available today.
6. Save for retirement
Just as your parents sent you off to kindergarten to prepare you for success in a world that seemed aeons away, you need to plan for your retirement well in advance, that is, right now.
An excellent way to get started on the right path is to educate yourself about the power or magic of compound interest. Once you do, the wisdom of starting your retirement fund as soon as possible will be undeniable. The simplest way to think of compound interest is as “interest on interest,” which means that you will earn interest not only on the principal (the money you put in) but also on the interest (the money the bank pays you for holding your principal).
By making your money grow at a much faster rate than simple interest, which is calculated only on the principal, compound interest supercharges your savings, especially over time.
Why start saving for your retirement in your 20s? Again, because of the way compound interest works, the sooner you start saving, the less principal you have to invest to end up with the amount that you need to retire.
7. Learn about taxes
Once you are making more money, you will have to start paying attention to taxes. Even if you are not making a lot of money yet, it is important to learn about taxes. Taxes will affect the way you save and spend your money. One thing to keep in mind is that everyone has a different tax situation. This means that the information you read online might not apply to you. If you have questions, contact a financial advisor or tax professional.
In a nutshell
Remember, you don’t need any fancy degrees or special backgrounds to become an expert at managing your finances. If you use these seven financial rules and financial tips for your life, you can be as personally prosperous as someone with a hard-won MBA in finance.