Whatever decision you make financially, you will see its consequences in the next 3-5 years. Think about it: if you decide to take out a loan, you won’t see the results instantly, but you will see how it gradually changes how you live. Or what about deciding to have an emergency fund? Let’s say you keep adding to it, and then when you need it down the road, you will use it and thank yourself for it. But it was all because of a decision you took in your early years. But it can sometimes be hard to know what decisions to make if no one has given you any financial advice. Don’t we all wish there were some financial advice for young adults?
Here is some financial advice I was given early on, and I want to pass it on alone. It can help young adults tremendously.
Understand your current financial situation
You first need to understand what you have. How much money do you have in your account? What is your current net worth? Net worth is having cash and any valuable items you possess.
Tackle debt
Make it a priority to pay out the debt. This is important. Having debt affects everyone and everything around your life. Either credit card debt, student loans, personal loans, and everything in between. Make sure you are paying more than the minimum and make a plan to get out of debt.
Create an emergency fund.
The earlier you start, the better. When we are young, we tend to feel invincible and that nothing terrible will happen to us. We can always get a new job, go back to school, and not get sick, or have any incidents. But the reality is different. Let’s say you get laid off from work; fantastic, you can find a new job, but it will take time. The bills and expenses are always going to be there. You need a dedicated fund that you fall back on while getting back on your feet.
Have a dedicated account to add to it every time you get paid. It doesn’t have to be much, but you need to add to the account consistently. Your goal should be to have at least 3 – 6 months’ worth of expenses. You’ll first need to make a summary of all your costs per month that are critical and then decide if you need a little bit more to have some cushion.
Set a financial goal
Set yourself a financial goal that you need to hit. This can be a yearly goal or a monthly goal. For example, let’s say you aim to save $6,000 annually. That would mean you need to save 500 a month or 125 each week. Set your goal and break it down.
Track your spending
Understand what it is that you are spending your money on. Categorize your expenses and see where you need to improve. Do you need to buy more items on amazon? Are you eating out too much? How many subscriptions do you have/need? If so, try to cancel those unnecessary subscriptions. I do this by hand. I know, I know it. It might sound old-fashioned, but it forces you to take your time and consider each of your purchases.
Build a good credit history.
Focus on having smart debt. Don’t fall into the trap of getting those store credit cards. That 10% off might sound good but will only help you a little in the long run. Get one credit card you can use anywhere, get awarded points, and build your credit history. Try only to use 30% or less of your available credit. For example, if you have $1,000, try to spend $300 or less. This is one of the best pieces of financial advice for young adults.
Move out only when you are ready.
Independence is a top priority during the early stages of adulthood. But don’t rush it. Only do it if you can afford it. And don’t feel embarrassed or ashamed if you still need to live with your parents.
Only buy the essentials.
I get it, there is a new shiny phone coming out, and you have to have it. But is it essential? If you can afford to buy it comfortably, then ok. But if you are doing it purely out of vanity or status, consider your stance. The same goes for clothes, shoes, and everything in between.
Build wealth by investing
This one is another excellent piece of financial advice for young adults. We are always taught to save money, but that is only half the story. Investing takes your finances to another level. If you are lucky, your money earns little to nothing in the savings account. Look into investing your money into something like index funds.
Have a diverse set of income streams
Don’t just depend on that 9-5 job. Try to have hobbies that bring you extra income. Do you like graphic design, coding, and photography? Consider using those skills and put them to work in your free time.
Set some cash aside for entertainment.
Life can’t constantly be grinding, grind, grind. You need to set some time and money aside to do fun things. But try to be competent in the way you do it. Spending a certain amount of money keeps you on track with your financial goals.