Financial Advice For Young Adults – What You Need To Know But Weren’t Taught In School

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You just received your first paycheck and you are really excited! Finally, you’re making some real money. But, what should you do with that hard-earned cash? Of course, you probably would like to have a good time but now is an excellent time to get your financial life in order. Personal finance is a critical life skill that is not sufficiently taught in school – if at all – and most people are clueless when it comes to managing their money. Here are a few tips to help you get on the right financial footing.

  1. Live Below Your Means. In order to do this you’ll need to learn self-control. Keep your expenses lower than your income. Delay gratification and save for what you want instead of using a credit card. Living on credit because your tastes exceed your income is a strategy that has doomed many people. Don’t let that happen to you. It’s also important to curb your expectations. You may want a big house, a car and to take nice vacations early on in your career, but if you have student loan debt this may not be feasible. If you have the opportunity to live with your parents or family members for free, do it. This could help give you a sound footing on a prosperous financial future. If you are blessed with the option to live rent free, don’t forget to pay them in other ways like cleaning or cooking dinner.

  2. Know Where Your Money Goes. Create a budget so you can take control of your finances. Make sure you give every dollar a purpose. This will help you see where you may be able to cut expenses. Keep in mind that it is unrealistic to forgo every pleasurable purchase in the hope of future financial wealth or freedom. Set a budget and stick to it, but include some room for the occasional night out or small shopping spree. Just make these splurges the exception, not the norm.

  3. Start an Emergency Fund – Be prepared for the unexpected. Having emergency savings will help keep you out of financial trouble when disaster strikes. It’s a good idea to keep a few months’ worth of expenses in a separate bank account tagged for emergencies in case you, or another household earner, lose a job. To help with this, make savings automatic. If your employer offers direct deposit, take the opportunity to funnel cash directly to your emergency fund savings account.

  4. Begin Saving For Retirement Now. Always save for retirement, even if you are starting your very first job. Saving early means bigger payoffs in the long run. If your employer matches your contributions to a 401k plan, contribute at least enough to take advantage of the full matching. This is free money! If you don’t have a 401k or aren’t sure how retirement plans work, get more information buy taking our course Savings and Retirement.

  5. Get out of debt as quickly as possible. If you just graduated from college, chances are you have some student loan debt. And, maybe you have other consumer debt, which includes credit cards and auto loans. Whatever types of debt you have reduce them as quickly as possible. In order to help with this it may be a good idea to work two jobs the first year or two of your working life. This may not seem glamorous but it can set you far ahead in terms of your financial health and wealth.

  6. Establish Credit. Understanding your credit score and how it works is a necessary financial skill. If you don’t have credit, it’s important that you learn how to establish credit now in order to prepare yourself for when you need to make big purchases such as a car or a home. Learn to use credit wisely and pay your bills on time. Not only is it a good habit, it will help you build credit and avoid exorbitant late fees. And by the way, employers, landlords and insurance companies will look at your credit score as well to determine whether you get that job, that apartment, and what premium you will be charged.

  7. Get Covered. It’s very important to be insured against loss. Young adults may not think insurance is necessary but having health, auto, renters, disability and life insurance can help with unexpected life situations. A visit to the ER can cost $1,000 or more for even a simple ailment. Things get more expensive for broken bones. If you have no dependents you may not need life insurance but, if you have debt that Mom and Dad co-signed, you should have enough coverage to retire the debt. It’s only fair, given your parents’ years of extended financial support. Renter’s insurance is cheap: $10 to $15 a month, and it comes in handy not only when someone steals your things but also if your dog bites a neighbor. Disability insurance may seem like unnecessary insurance yet one in three working adults miss at least three months of work at least once in their life due to illness. Anyone can throw out his or her back. Protect yourself. 

  8. Invest in your future. Networking is one of the most important career skills you’ll ever learn. Stay in touch with your college friends and professors and get to know your colleagues. Attend seminars to educate yourself and join professional groups to meet others in your industry. Networking with the right people in your industry can open doors for you and help your career flourish. Most times in the working work, it’s all about who you know. What you know will help you keep the job but who you know can help get you the job.

  9. Clean up your social media profile. It’s one of the first things prospective employers will look at. If you don’t already have a LinkedIn profile, create one to highlight skills you’ve gained through your education, your volunteer work or any jobs you’ve had so far. Remember to use spell check and and don’t trust autocorrect. First impressions are important.

  10. Give back. Pay it forward by giving back to others. Be a mentor to a young person or volunteer in your community. No matter what you do be sure to help others.

Educate yourself on how money works and let it work for you. Read, learn and think ahead. Don’t assume you have to meet only one goal at a time. Prioritizing between paying down debt and saving goals can be difficult. You have to balance two competing interests – reducing debt as quickly as you can versus investing your cash in an appreciating asset. If you have $200 extra each month, you might want to put half toward your savings goal and half toward reducing credit card debt, for example.

Be realistic. Make decisions based on what you can afford now. If you have more money later, you can reevaluate your plans.

What financial advice has been most helpful to you? Tell us about it.

Take control of your money!

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