Young adults should learn money management as early as possible, as the younger you start knowing how money works, the faster you can achieve financial independence and long-term financial goals.
Being financially responsible can be as simple as budgeting, creating emergency funds, and understanding taxation concepts. It’s never too early or too late to start learning these skills.
Money Saving Tips For Young Adults
This article covers the top 10 essential money-saving tips for young adults and why learning money management is necessary early on.
Learn How To Budget
The classic first step to managing your finances is learning how to budget. Create a budgeting plan where you allocate reasonable amounts for your wants, needs, and savings, and then stick to it as much as possible.
Track all your expenditure to ensure your money goes exactly where you need it to. Remember, budgeting is only successful if you adhere to your plan.
Create An Emergency Fund
Even the tightest budget should allocate money to an emergency fund. An emergency fund is your fallback for unexpected life events that cause financial hardships, and it can help you avoid going deeper into debt when emergencies happen.
When creating an emergency fund, it’s best to put your money in a high-interest savings account rather than the stock markets. This way, you can grow your money without the risks of other types of investments.
Use The 50/30/20 Rule
One simple money management tip for adults and teens is following the 50/30/20 rule. You should allocate 50% of your income to your needs, 30% to your wants, and 20% to your savings.
With this rule, you can secure your savings and fund your essentials while fulfilling your wants.
Learn How To Separate Needs From Wants
Regarding funding your needs and wants, you must know how to distinguish one from another. You should only consider ‘needs’ as your day-to-day essentials that directly impact your quality of life, such as transportation and housing. All other expenses should be considered as ‘wants.’
Separating these two categories allows you to adjust your spending and create more effective budgeting plans. You can cut back on your wants anytime you need to reduce your expenses without sacrificing your basic needs.
Use Cash Instead Of Credit
Get into the habit of only spending money on things you can afford. Consider using debit or making cash payments, and avoid using a credit card that accrues interest when you miss paying off the balance each month.
Even if this means it may take longer to build your credit score, you’ll be less likely to fall into debt due to excessive purchases, which is far more crucial than increasing your credit limit as a young adult.
Set Goals For Yourself
Set short and long-term goals to measure whether your financial habits are helping or hindering your economic progress.
These goals can be as simple as saving $10,000 a year or paying off credit card debt within a year.
Customize your financial goals based on your needs and capabilities. Make sure they’re realistic but not overly easy to achieve so you can still feel motivated by the challenge of enhancing your financial potential.
Money Management Tips For Both Adults And Students
Educate And Invest In Yourself
An advantage you have as a young adult is the long timeframe before retirement. This allows you to grow your investments through compound interest and have time to invest in yourself.
Arm yourself with more financial tools by reading books and consuming various media related to money management.
Apart from learning, you should also invest your time in developing new skills, maintaining your health, and meeting new people, as these factors collectively contribute to your long-term success, both in terms of your finances and your overall quality of life.
Pay Off Your Debt
Debt is the opposite of savings; the longer you put it off, the more expensive it’ll be. So, you should prioritize paying your debt off as early as possible. Fortunately, several debt repayment strategies, like the snowball and avalanche, can help regardless of how much you owe.
Learn How Taxes Work
Whether you’re financially successful or not, there’s one expense category that you’ll always pay for the rest of your life, and that’s your taxes. You’ll be spending thousands of dollars, if not millions, toward taxes, so it’s essential you know how they work.
Understand your tax bracket and leverage retirement accounts to minimize your tax burden.
Set Yourself Up To Have Multiple Income Streams
This article wouldn’t be complete without mentioning one of the most crucial money tips for reducing financial stress: setting up multiple income streams.
This strategy increases your earning potential and can help you reach financial freedom faster.
If you are looking for side hustles to start, here are some to consider.
I initially published this article on Forbes.