10 Financial Tips Every Young Adult Needs to Know

 Financial Tips Every Young Adult Needs to Know – The first step toward financial independence, whether you’re graduating college or entering the workforce, is to take control of your money and avoid making the same mistakes so many other young people make. 

Most people don’t realize how much of an impact their decisions can have on their finances now and in the future, but it all adds up—whether you’re talking about credit cards, student loans, or the rent you pay each month. 

These 10 financial tips will help you take control of your money early in life and build good habits that will keep your finances in order for years to come.

10 Financial Tips Every Young Adult Needs to Know

1) Start saving now

A recent study found that 70% of Americans have less than $1,000 saved for emergencies. That’s not good news for young adults who are just starting out on their own and living paycheck-to-paycheck. 

The earlier you start saving, the better off you’ll be. So, get started! Consider setting up a savings account and automatic deposit into it every month so your money will grow without you having to think about it. 

If possible, put at least 10% of your income into this account (yes, even if it means cutting back on a few other things).  And set up an emergency fund with enough cash to cover six months’ worth of expenses – or at least three months’ worth if you can’t afford more right now.

An emergency fund is critical for people who live from paycheck to paycheck as well as those with unexpected job losses or health issues that can happen at any time.

2) Learn how compound interest works

Compound interest is when you earn interest on the balance of your account as well as any new deposits. 

For example, if you deposited $1,000 and had an annual percentage rate of 5% (APR), then at the end of the year you would have earned $50 in interest. 

This means that now your balance would be 1,050. If this continues for 10 years with the same APR, then you will have earned a total of $600 in interest on your initial deposit of $1,000. 

In contrast, if you only make one deposit of $1,000 into your account every year but don’t earn any interest on it, then after 10 years you will only have $2,200.

10 Financial Tips Every Young Adult Needs to Know

3) Save in multiple accounts

Savings accounts are one of the best ways to save money, but in order for them to work, you need to keep your money in them. If you withdraw it and spend it on something else then all your hard work saving that money will be wasted. 

It is also important not to have too many savings accounts because if you make a mistake with one account and take out the money then all your hard-earned cash could be gone. 

A good rule of thumb is three accounts: a checking account, a savings account, and an emergency fund. An emergency fund should only contain enough money to cover expenses for three months. 

The first two types of accounts should contain different amounts of money so that the checking account can be used for everyday transactions and the savings account can grow over time.

4) Pay yourself first

Pay yourself first. The most important tip for young adults is to pay themselves first. This means saving a percentage of their income before they do anything else with it. 

Once you have some money in the bank, even if it’s just $5, it will be much easier to make decisions that are better for your long-term financial health.

Start an emergency fund. It’s important for young people to have at least a few thousand dollars saved up in case something happens and they need money quickly. 

A good rule of thumb is to save up enough for six months’ worth of living expenses, plus three months’ worth of living expenses as an emergency cushion.

5) Invest your savings

1. Open a Roth IRA or other retirement account. You can’t put money into one if you have earned income, but you can contribute up to $5,500 a year in after-tax dollars. 

If your employer offers a 401(k) plan with a match, contribute at least enough to get the full match, and then increase your contributions as much as possible. 

The earlier you start investing for retirement, the less risk you’ll be taking on and the more time your investments will have to grow.

2. Buy disability insurance now. It’s likely that even if you’re healthy today, something might happen tomorrow that could render you unable to work for an extended period of time – which would leave your bank account running on fumes quickly. 

Disability insurance is designed to replace a portion of your paycheck should you become disabled (say, because of injury or illness), so it’s important to invest in this coverage before it becomes too late.

10 Financial Tips Every Young Adult Needs to Know

6) Think about insurance options (health, life, homeowners, renters)

Insurance is often a topic that is overlooked when it comes to personal finances, but it can be one of the most important factors in your life. You never know what might happen, and with insurance you can feel secure knowing that if something does happen, you will be covered. 

Plus, it’s not as expensive as you may think. It’s always worth a look! Many people have health insurance through their work, which is great because they get access to affordable health care without having to worry about monthly payments or deductibles. 

But for those who are self-employed or don’t have job-based benefits, this isn’t an option and healthcare coverage costs more each year. 

If you’re considering a job change because the cost of healthcare for your family has become too high or unaffordable, keep in mind that some employers offer comprehensive benefits packages with their jobs.

The amount of coverage you need depends on how much money you make now and how much risk you’re willing to take on financially.

7) Don’t hide from debt collectors

Don’t let debt collectors scare you! If you’re currently struggling with student loans or credit card debt, there are steps that you can take to get on top of your finances and start getting back on your feet. 

The first step is the hardest: admitting that there’s a problem. Once you do this, it’s time to contact the company that is trying to collect from you. 

You’ll want to figure out what repayment plan they offer and if it will help make your payments more manageable.

Also Read- 6 simple (and effective) ways to rebalance your mutual fund portfolio

8) Keep your credit score high

It’s important that young adults keep their credit scores high by paying off loans, staying on top of bills, and avoiding debt. 

One way to make sure you don’t miss any payments is to set up automatic bill pay through your bank account so they’re paid on time every month. 

If you are interested in a loan in the future, it’s important that your credit score is as high as possible so that you can qualify for a good interest rate. You can check your credit score for free through Credit Karma!

Also, Read-Ways to save yourself from higher inflation rates

9) Learn about investing

There are a lot of ways to invest your money. Some people invest in the stock market, while others invest in real estate or private businesses. But no matter what you decide to do, there are a few things you should keep in mind:

– Investing is risky so be sure you know what you’re getting into before making any investments. 

– You need to have money saved up for emergencies and start saving early because that will give you more time for your money to grow. 

– Don’t put all of your eggs in one basket – diversify! That way, if something goes wrong with one investment, it won’t hurt as badly. You also want to make sure you take on a risk level that’s appropriate for your age and lifestyle. 

For example, someone who’s 65 might not want to take on as much risk as someone who’s 25 years old. And remember – there’s no such thing as 100% safe investments!

Also Read- 7 common mistakes that people make when it comes to life insurance

10) Budget and track your spending

  1.  Track your spending with a budgeting app like Mint or Level Money. This will help you understand your habits, and it’s pretty cool to see how much you spend on different things.
  2. Save some money for emergencies. You never know when something might happen, so having a small savings account is necessary just in case.
  3. Get out of debt ASAP! Pay off any outstanding loans as soon as possible in order to reduce the amount of interest that builds up over time.
  4. Put money into a retirement fund like an IRA or 401(k). The sooner you start, the more financially sound you’ll be later on in life (plus, some companies offer matching funds).

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