Did you know that young Americans between 18 and 23 have an average debt of $16,000? That’s a lot of debt to carry and the number only grows as the interest on the debt compounds.
Financial management is important no matter your age, but too many young people don’t understand this fundamental skill.
Read these five financial tips for young adults and get started on a path to smart financial management.
1. Budget, Budget, Budget
It’s important to know how you’re spending your money every month. Keep track of all your spending for a month or two using an app or even pen and paper.
Writing down all your expenses helps you identify unnecessary spending choices. After a month or two, add up all your expenses for a grand total.
Do you make enough to cover your spending? Are you adding a little bit of credit card debt every month? Create a budget and stick to it and don’t spend more than you earn.
2. Save and Invest Now
Try not to spend every dime you earn each month. Start saving and investing now.
There are many ways to save but with something like get paycheck early, you can even accumulate rewards for saving. Retirement seems so far away when you’re young but if you don’t start saving early on, you won’t have much for retirement.
The younger you are when you start saving and investing, the more you’ll have for retirement. If you invest $100 a month in the stock market and see a return of about 12% a year, you’ll have over $1 million after 40 years.
If you wait, even if you invest much more monthly, you won’t see as high a return on your money. Include that $100 in your budget each month and put it in an investment account.
3. Start an Emergency Savings Fund
Most people live paycheck to paycheck with nothing left over at the end of the month. Instead, put a small amount in an investment fund and another small amount in an emergency savings fund.
Don’t invest the money in the emergency fund. This should be cash on hand in the event of an emergency, like a car repair.
4. Practice Self-Control
This can’t be stressed enough. It’s tempting to grab that latte every morning, but it adds up fast and it’s poor money management.
Don’t buy things because you can get them on easy credit. The compound monthly interest means you’ll often end up paying more for the item than it’s worth.
5. Stay as Healthy as Possible
This may seem odd but it’s important. Health insurance is expensive but getting sick without it will put you into debt.
If you’re under 26, stay on your parents’ health insurance if possible. You can reimburse them for any additional costs and it will be cheaper than getting your own insurance.
Avoid smoking, excessive drinking, and unhealthy eating. These behaviors turn into lifelong poor habits that result in high medical bills down the road. Medical bills deplete your wealth.
Follow these financial tips to build wealth and a more secure future. You don’t have to be a financial expert to manage money well.
Are you looking for more financial management tips? Keep reading the blog!