As a young adult, you find yourself in one of the most exhilarating phases of your life. At this juncture, you may have just left the nest of your parents, commenced the pursuit of your dreams, and faced the challenges that come with it.
You’ve ventured into the job market, experienced rejections, and reveled in the satisfaction of earning your first paycheck. But a harsh reality check awaits you, reminding you that life isn’t just about immediate gratifications or living paycheck to paycheck. There’s a vast world out there, and you must either save for your future or face the consequences with your eyes wide open. It may sound daunting, but let’s dive straight into it.
Unfortunately, personal finance fundamentals aren’t typically taught in schools. While your parents may have preached the importance of saving for the future, you might still feel uncertain about managing your finances in the real world. Financial jargon might seem foreign to you.
To provide some guidance, here are five friendly personal finance tips that could prove invaluable.
- Define Your Goals and Stay Committed Personal finance involves two core elements: planning and action. You’re at an age where instant gratification and the snares of consumerism are ready to consume your income. Safeguard your financial well-being by setting clear goals and adapting your lifestyle to align with them.
Begin by establishing a realistic goal. Assess your present and future cash flows, asset values, and retirement plans. Understand the mechanics of income taxes before receiving your paycheck. There’s no one-size-fits-all template for financial planning; it depends on your life goals and future expenditures.
After outlining your plans, work diligently towards achieving those goals. Create a budget, live within your means, and keep a close eye on your expenses. Ensure that your expenditures don’t exceed your income. If you’ve acquired credit, be prompt with your bill payments to maintain a strong credit history and avoid sinking into debt.
- Cultivate Financial Literacy Early On According to Filipino financial expert Francisco J. Colayco, “financial literacy is not about numbers – it’s all about mindset.” Even with limited income, you can thrive if you have a sound mindset. To reshape your perspective on money and optimize your life, it’s essential to continually expand your knowledge.
Start by developing a keen interest in reading. Books like Erik Tyson’s “Personal Finance for Dummies” offer valuable insights for those with minimal knowledge of personal finance. These books cover essential concepts, such as budgeting, investing, and credit management.
Furthermore, there is a plethora of excellent finance blogs and websites available online, offering insights from experts and everyday individuals. Websites like Kiplinger, Investopedia, Bankrate, and Wise Bread are some reliable sources of advice.
- Leverage Technology to Your Advantage Millennials have been fortunate to experience and access cutting-edge technology. Your mobile phone can be a potent tool for managing your finances with ease. Downloading and using financial apps is just a few clicks away.
Apps like Mint provide real-time insights into your financial accounts, offering a comprehensive view of your bank accounts, credit cards, and even sharing savings tips. Personal Capital analyzes your income and recurring expenses, suggesting your daily, weekly, and monthly spending limits to help you become a wiser saver and spender.
For tracking your credit file, Credit Karma is indispensable. It offers free credit scores and reports, enabling you to monitor your spending patterns by linking to your credit card and bank account. The app also recommends improved credit card offers to enhance your financial situation.
- Always Prepare for Emergencies Life often throws unexpected challenges your way. Emergencies can arise when you’re navigating financial struggles. They can compel you to exhaust your year’s savings on a week of unexpected hospitalization.
Therefore, it’s wise to establish an emergency fund. Instead of stashing cash in a fragile jar, opt for a high-interest savings account, a money market account, or a Certificate of Deposit (CD) that accumulates interest over time.
Insurance is another safeguard for your well-being and finances during emergencies. Whether it’s life, health, or property insurance, it acts as protection against financial losses. However, ensure you educate yourself about insurance options, thoroughly understand your choices, and take the time to study them.
- Ponder Your Retirement You might think it’s too early to contemplate retirement when you’ve just begun to relish adulthood. However, the sooner you start saving, the sooner you’ll view work as an “option” rather than a “necessity.”
This is made possible through the power of compound interest. The more compounding periods you have, the more significant the compound interest. This results in less principal to invest, ultimately helping you reach your retirement goal.
Begin exploring your retirement plan options today. You can contribute to an individual retirement plan or choose a company-sponsored retirement plan with high contribution limits.
If you closely examine these five tips, you’ll realize that they all revolve around taking action today. “Today” is irreplaceable. The sooner you master self-discipline and acquire knowledge about effective money management, the sooner you’ll have your finances in order.
So, if you believe you’ve accumulated a decent sum in your bank account, perhaps you can pour yourself a nice glass of wine and celebrate the joy of being a young adult.
