Financial Tips for Young Adults

Written by: Jeanlyn Anyayahan

As young adults begin to take financial responsibilities, it is important to learn how to manage your money to ensure a prosperous future. If you are wise with your financial actions now, you can reap a lot and enjoy it later. Here are some tips to help you reach your financial goals.

Monitor your income and expenses

It is important that you establish your income and estimate your outgoings to ensure you are not spending over your means. The best way to do this is by budgeting. 

To build a budget, you need to start by calculating your monthly allowance. The amount of money you make available in each month is essential for budgeting as it creates the foundation for how much you can spend. Also, you need to determine your expenses and break them down into two main categories: fixed and discretionary expenses. Generally, fixed expenses, including rent and groceries, cannot be cut down from your budget. 

On the other hand, subscription services, vices, entertainment and dining out are labeled as discretionary expenses. You can consider spending less on these things and saving up to make more critical purchases, such as paying down your debt and traveling. For example, I am an iced coffee lover and spend about $9.00 on it per week. I spend $36 per month which accumulates to $432 per year. 

I realized that I could save a few extra hundred dollars per year by cutting down some of these non-essential purchases. As an alternative, I make myself some iced coffee at home which cost me less. As we can see, all our purchasing decisions, no matter how small, will start to add up.

Set a budget

Budgeting has different types of approaches. You must choose a strategy that works for you. That is if you can commit to it. The following are some approaches to budgeting.

• 50/30/20 rule. This rule breaks down your finances in a manageable way. According to the rule, you spend 50% of your income for needs, 30% for wants and 20% to go toward savings and debt.

• Envelope system. In this system, you will use the good old cash and divide it into different spending categories—bills, groceries, and so on. Label the envelopes according to the categories and allocate your cash into the respective envelopes. The aim is to only spend the available cash in the envelope for that expenses. 

• Create-your-own budget. The list of budgeting methods is endless, because there is no such thing as “one size fits all” in this case. Do not worry if none of the approaches that exists works for you! You can always create your own budget. 

You can choose to combine several different types of budgets. To start, you might have to do some research and learn about different budgeting methods. Do not be afraid to explore some options!

If you have trouble getting started, try apps, such as Mint, designed to help you better track and meet your goals. Also, you can explore Excel and make budgeting spreadsheet that suites your preferences.

Learn self-control

Do you have a habit of being impulsive when you see a big fat ‘SALE’ sign at the store front or website? I do. 

Fortunately, I learned to control this habit by taking some time to think about my purchasing decisions. Before checking out, I stop and ask myself why I’m buying the item. Is it a want or a need? By doing this, I became more mindful about my spending. 

Being responsible with your money is not about needing to deprive yourself all the time. It is learning the discipline of spending money on what is the most important and prioritizing your financial goals.

Start an emergency fund

2020 surprised us with many challenges. A lot of people lost their jobs due to the unstable economic state, lost their homes from a fire and experienced sickness which could result in financial hardships. Nobody knows when emergency expenses will pop up. 

Instead of borrowing money with interests to fund emergencies, work towards building your emergency fund. Set aside even a small portion of your income into it each month, and it will be available for you whenever it’s needed. It’s better to be ready than sorry!

Build wealth, not just a savings account

As a millennial, it is not too early to build wealth. In fact, this is the best time to start building it, because time is our best friend. If we invest now, the more time our funds will have a chance to compound and grow. 

As the classic adage say, “The best time to plant a tree is 20 years ago. The second-best time is now.”

Track your progress

It’s important to check your progress from time to time. You should track of your budgets and purchases to keep your goals in sight. Also, do not forget to recognize and celebrate small achievements.

Never stop learning about money

Our knowledge about money is not something we are born with; we have to learn it. Some ways we can do so include reading a book, talking with friends, family or a financial advisor, and taking a finance class. Take advantage of opportunities that will help you improve your financial literacy.

Now, go forth with your newfound financial wisdom and prosper. Remember, no one can master budgeting overnight, but you will be putting yourself on the right path going forward with these tips in mind. You got this!