5 Financial Tips for Young Adults

5 Financial Tips for Young Adults

An often missing but much needed component of high school curriculum's is personal finance. Combine that with similar lack of guidance at the college and university levels, it's easy to see how young adults can become overwhelmed early on in their adult lives. Learning some basic financial concepts can go a long way in avoiding the all too common debt trap and the accompanying frustration.

Tip #1 - Self-Discipline

This tip is one that even seasoned adults struggle to comprehend. Many times, desire overcomes logic. As a result, our desires lead us down the road of having to leverage our income in order to purchase that "must have" new car, or computer or big screen TV. The credit devil which leads us into the debt trap can be a trap extremely difficult to escape.  Credit cards are very enticing. With that said, useless you can pay for the complete balance at the end of each month, eventually the power of compounding interest will work against you keeping you in the debt trap for years. Credit cards should be for unavoidable emergencies early on. Once you have established a budget, then you can begin to venture into the credit world.

Tip # 2 - Know where the money goes

Another issue many young individuals encounter is not tracking expenses. The excitement of the first full-time job often gives the impression the money supply is limitless. A result, keeping a balanced checkbook quickly fades into the background. Friday happy hours, monthly subscriptions and dining out on a regular basis can be a sledgehammer to any budget. Not being able to control your own finances will make you an easy mark for someone else to take advantage of your inexperience in financial affairs. Personal finance is a skill just like any other. Learning this skill will go a long way in achieving financial awareness.

Tip # 3 - Start an Emergency Fund

Earlier, I mentioned that credit cards can be used for unexpected emergencies. This should be the case until you are able to establish your own emergency fund. An emergency fund should be 1 to 3 months your monthly net income. Example: If you bring home $4,000 a month net income, your minimal emergency fund should be $4,000 and could be up to $12,000. Seems daunting at first, however follow a simple rule of saving 10% of your income for this very purpose. Within a 1 yr you could save up to $4,800 using this concept. The money should be in a separate savings account that isn't easily accessible to ensure desire doesn't sabotage the process.

Tip # 4 - It's Never too soon to start a Retirement Account

Retirement seems so far away when your first enter the workforce either out of high school, trade school or the college/university. With that said, take it from experience, it will be here sooner that you think. When investing for the future, there are 3 key factors to consider. One - time horizon. Fancy term for when you will need the money. Example a typical 25 yr old will work approximately 40 yrs until retirement age of 65. An older person, say mid-career and 40 yrs of age will have only 20 yrs till the same exit point. Big deal when investing. Two - Amount of money being invested. The amount of money being contributed towards retirement can be a relatively small sum, when you have a long time horizon. When you have a short time horizon, the amount of contribution needs to be larger to offset the time missed. Three - Rate of Return. Your rate of return your money will be earning over those 10,20,30,40 yrs will be a final equally large determinant of when and how you will be able to retire. Someone earning 1.75% on a CD (Certificate of Deposit) at the bank will have to work much longer or contribute greater amount of funds to produce a comfortable retirement. This it is why learning on where to invest for retirement is crucial. I have posted several article of this subject. If you have a personal need, please contact me at [email protected] for a commitment free consultation.

Tip # 5 - Work on your Health

You have done all the paper and pen portion for setting up your financial future. Now it's time to dedicate some time to your mind, body and spirit. It does no one any good to work so hard and so long to save the necessary funds to not be able to enjoy the fruits of your labor because a poor health. Maintaining your health is a simple process that can't be ignored. Much like the compound effect can work for you or against you in the world of finance, it can also do the same with your health. One bad meal once in a while is no big deal, however, constantly eating less than nutritious meals can lead to health issues down the road, shortening your life span. Equally in this bucket is exercise. No one is saying you need to be a gym rat. With that said, exercise is vital component in the reduction of stress, better sleeping patterns and weight control.

No one said being an adult was going to be easy. Nevertheless, establishing some guidelines early on in life can make the journey so much more enjoyable. If you have any question regarding any of the tips provided here, please contact me at [email protected].