The typical high school curriculum does not include courses on finance for young adults. This leaves many young people clueless about money management. Fortunately, some states now require high school students to take an economics course, while others require a personal finance course. This will help some of the next generation, but what about young adults whose high school education is behind them?
Here are some financial tips for young adults that will come in handy.
Create and stick to a budget
Budgeting is a story as old as time that helps you ration your expenses. The first step towards creating a budget is to set aside money for basic needs such as rent, food, electricity and other monthly bills.
The next step is budgeting for the need, which can be anything from a new smartphone or a vacation. Prioritizing your endless list of wants can be a daunting task for most people. The key is to balance them with your equivalent monthly payments and the amount you intend to save each month.
There are four common budgeting methods that can come in handy here:
- The zero-based budgeting technique helps track constant income and expenses.
- The pay-it-yourself budget prioritizes debt repayment and savings.
- The 50/20/10 technique prioritizes needs over wants.
- The “no” budget focuses on reducing your debts.
It’s up to you to decide what best suits your needs.
Don’t wait to save and invest
Saving when you have student loans and credit card debt to worry about can seem impossible. However, it is wise to put a certain amount in your savings account each month, no matter how small. Having a rainy day fund will give you peace of mind and save you financial trouble in an emergency. You can put the money in a high interest savings account, money market account or certificate of deposit.
It is not enough to save, you also have to think about investing. It’s a great way to make sure inflation doesn’t eat away at your money. Investments also allow you to grow your wealth and achieve bigger dreams like building a house and a happy retirement. Investments suitable for young adults include side businesses, index funds and 401k.
Learn to manage your debts
Some debt like a college loan is necessary and allows you to pay for something that brings long-term benefits. With rising tuition costs, a student loan can help you complete your education and find a job. On the other hand, paying high monthly payments on a new smartphone only increases avoidable debt.
That said, it is crucial that you take steps to become debt free. Start by getting a credit score from an online tool like www.bills.com. You will also need to establish a repayment plan. The snowball plan is a popular debt repayment strategy that advocates giving priority to small debts, regardless of their interest rate. The debt avalanche strategy prioritizes debt with the highest or highest interest rate, while debt consolidation combines your debts into one loan.
Control your taxes
You are never too young to learn how income tax works. You need to know how to calculate if your salary will give you enough money for your financial obligations after tax deduction. There are a number of online calculators that will do this dirty work for you.
It’s important to consider the marginal tax rate and how it affects your income if you get a raise. The rate varies depending on the state of residence and its potential tax bite. A financial advisor can help you learn more about your tax obligations and how they affect your income.
Last but not least, learn to do your own taxes. It’s not that hard, and paying a tax professional is an expense you can’t afford in your twenties.
Protect your heritage
You need to protect your hard-earned wealth if you don’t want it to disappear. Renter’s insurance is a great option for those who rent, while disability insurance protects against loss of earning ability.
You will also want to protect your wealth against inflation and taxes. Some low-risk options to explore here include high-interest savings accounts, CDSs, and money market funds. Bonds, mutual funds, and stocks offer greater opportunities for monetary rewards and financial setbacks. Again, a financial advisor can help put you on the right track.
You don’t need a fancy degree to manage your money and stay out of debt. These financial tips for young adults will guide you. Budgeting, saving, and accounting for your debts will soon help you achieve financial freedom.
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