High school students have to pass a personal finance class to graduate in 21 states. While these classes can help, they come at a time when few teenagers understand the true value of a dollar. And even with personal finance tips from an institution, young adults need help putting that knowledge into practice.
If you’re a recent high school graduate, college student, or member of the workforce, financial tips for young adults can put you on the path to a secure financial future. It’s never too early to master the art of personal financing. In fact, learning the basics at an early age can save you years of hardship later on.
Avoid some of the most common and expensive mistakes by following these ten must-have financial tips for young adults.
1. Pursue a Trade
The more money you make, the more financial flexibility you’re allowed. You don’t have to decide on a trade or college degree right away, but it’s important that you take steps to improve your professional outlook whenever possible.
If you can’t afford traditional college, try to work your way through a community college first, then transfer to a larger university later on. College not your thing?
Trade schools are a fantastic alternative that can lead to high demand jobs, such as plumbers and electricians. Nowadays, you can even teach yourself marketable skills by picking up some programming and computer knowledge and earning certificates online.
2. Control Credit Card Spending
Your credit line isn’t free money. You’ll have to pay it back — with interest — which means you’ll always come out behind. You should never accrue a credit card debt that exceeds your ability to pay it back.
Credit cards are safer than debit cards, and they help you build a better credit score which can help you later on. So don’t avoid them entirely. Just make sure you pay them off at the end of every month or you could lose hundreds.
3. Build a Positive Credit History
Speaking of a credit score, you’ll want to start building a strong one as soon as possible. A decent credit score will land you big-ticket purchases, such as homes and vehicles. And the better your score, the better your interest rates when you make a purchase.
To build your score, you’ll first need a credit history. This is a report of all credit transactions you make. By paying off your credit card, student loans, and other forms of debt with timely payments, you’ll earn an excellent score before your 30s.
4. Start Saving for Retirement
It’s hard to think about retirement when you’re a young adult. I mean, that’s decades and decades away. Why start saving now?
Well, thanks to compound interest, even a small retirement balance can snowball into a massive sum throughout the years. Every year you wait is another year you’re not growing your principal and earning free interest and dividends. This is especially true if your employer offers a 401K plan.
5. Marry for Financial Success
If you want a significant other with a reliable work ethic and income, you’re not a gold digger. You’re a realist.
Even the best personal finance tips can’t save you if your partner burns your combined income on irresponsible purchases. Use your early years to find potential partners who take financial security as seriously as you do. Once people start earning their degrees and beginning their professional careers, you’ll know who has it together and who doesn’t.
6. Understand Budgeting
A well-kept budget is the foundation of all personal financing. You’ll know how much you’re making, where it’s going, and if there’s room for improvement. Without this, you’re basically managing your financial future in the dark.
All you need is a spreadsheet through Microsoft Excel, Google Sheets, or one of a litany of free mobile apps. Track every paycheck and expense, and at the end of the month you can earmark your funds appropriately. It may seem like a lot of work, but you’ll only spend a few minutes budgeting every week.
That’s a small price to pay for peace of mind. If you’re only going to follow one piece of financial advice, this is the one. Start paying attention to your personal bookkeeping right now.
7. Create an Emergency Fund
Before you put your retirement account together, you need to save for something more pressing. That’s the emergency fund, the backup money you’ll have on hand in case of, well… an emergency.
Consider this scenario…
You’re living in an apartment all on your own. But then, due to an economic slowdown, you lose your job. Your emergency fund will keep you housed and fed while you pursue new income opportunities.
By rule of thumb, your emergency fund should cover at least three months of living expenses. As a young adult, you should aim for at least 6 months just to be safe.
8. Comprehend the Tax System
Taxes are simple in the US for W-2 employees. Although your employer will handle tax withholding for you, it’s important to keep the tax system in mind when you’re considering something like a new job.
For example, you know you need at least $30,000 every year to handle your current expenses. A $30,000 salary seems fine until you realize you’ll lose about 10% of that to taxes. Then, depending on your city’s tax code, you could pay even more.
Look at the tax rate every year at the federal, state, and city levels. You’ll be glad you did.
9. Invest in Insurance
Think of insurance as a parachute. You don’t necessarily need one while you’re taking a flight, but it’d certainly be nice to have in case of an emergency.
From house insurance to homeowner’s insurance, these policies protect your emergency and retirement funds in case things go wrong. They’re almost always worth the premiums. Better to pay $200 a month for health insurance than $20,000 for an unexpected medical emergency.
And yes, even as a young adult, health complications are always on the table.
10. Protect Financial Documents
Bank statements, insurance policies, tax returns — there are countless financial documents you’ll gather through the years. And in most cases, you’ll need to hold on to these for an extended period of time.
Do yourself a favor and create a filing system to organize these documents. If you ever need to reference them, you’ll know where they are. Otherwise, you have a high likelihood of losing crucial documentation with papers strewn about your apartment.
Mastering Financial Tips for Young Adults
If there is one trait all successful people share, it’s that they know how to manage their finances. Nobody retires on time or amasses a great deal of wealth without financial discipline.
Hold on to these financial tips for young adults. Or better yet, read them again. Because once you comprehend the basics of personal financing, life gets just a little bit easier.
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