Financial Advice For Young Adults
Many a young adults are fairly clueless about how to manage their money. They are just in their twenties, and have recently gained the independence they wanted from their parents. While the feeling of independence is great, but it’s also expensive. And I say this from personal experience. I was totally clueless about how to manage my personal finance and like many other young adults I made the mistake of using my credit card for every purchase, no matter how small the purchase. As a result, huge balances charged up quickly and the debt still haunts me. So, the first financial advice for any young adults would be not to make this terrible mistake.
Ages between 16 and 25 are known as foundation years and our financial habits determine our financial future. So it is important for young adults to maintain strong financial discipline and develop sound habits. Below is some financial advice for young adults which I’ve found helpful. The tips are practical and easily doable. It can save you from a lot of financial trouble.
- Live Within Your MeansThis would be the first financial advice I would give to any young adult. Many a young adults make purchases that are totally unnecessary or out of their budget. Youth are easily tempted to give in to their desires and this makes their financial planning go haywire. So, it’s important that young adults keeps financial discipline and work as per their budget.
- Pay in CashAvoid using your credit card and always try to pay in cash. Paying in cash actually makes one realize how much money is being spent and also it is proven human behavior that a person will spent less while paying in cash.
- Set a Monthly BudgetSetting a monthly budget works wonder. A person is aware that he has to spend according to his predefined budget and he would avoid unnecessary shopping. One thing to note is that while setting a budget one should include all their expected expenses and then stick by the budget.
- Start an Emergency FundSome unexpected expenses are bound to arise and one should always be ready for any contingencies. So starting an emergency fund would certainly help. Make sure you deposit a certain percentage of your savings in emergency fund. Normally, I deposit 10% of my savings in emergency fund. You have to decide your own limit.
- Have Only One Credit CardThough I would advice to avoid using your credit card as far as possible but if you still need a credit card, keep only one. It is hard to keep track of every transaction if you have more than one credit card and your credit card bills would add up quickly. In fact. you may even end up paying that debt all your life. So stick with one credit card and pay it off in full each month.
- Start Saving For Retirement NowIt is never too late to save for retirement. Personally speaking, retirement is a subjective issue. I am planning to retire in the next 15 years(I am only 22 now). But it wont hurt to save now and in fact if you start early you will see tremendous benefit.Just as an example, let’s say you invest $200 a month beginning at age 25, and you earn 7 percent annually on that money. By the time you turn 65, you will have about $525,000 saved up. If you wait until you’re 35 to begin saving, assuming the same monthly investment and rate of return, you’ll have amassed less than half that amount — about $244,000. This illustration simply shows the impact that a 10-year head start can make on your savings, thanks to the magic of compounding.(Example from bankrate.com)
- Understand Your TaxesIt is important for young adults to understand how taxes work and how much taxes would be levied on their salary and what will be their net salary. This will help in setting a budget and you can easily plan and allocate resources. There are many online calculators that will help in determining your own payroll taxes. One such online tax calculator is Paycheckcity.com.
- Create A Source Of Passive Income OnlineA little more money always makes life easier and the best way to earn that is online. If you have some expertise or knowledge on a particular subject, why not write about it and share it online. You can earn from your writing perpetually.
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