There are a lot of things they don’t teach you about finance in school.
Education on managing money for young adults is limited, and you’re left to figure out a lot on your own. However, managing money as a young adult is harder than it used to be, and thus more important.
In terms of money lessons, there are some things that you are better off wrapping your head around in your late teens. These lessons surround an area of profound transformation in everyone’s lives; when you finish your education (often with a lot of debt) and get your first job.
This is normally the time when you will also have to live on your own and manage your finances for the first time (though that is delayed far more often these days, too).
Let’s jump right in.
You’re lucky if self-control was instilled in you when you were young.
But regardless, self-control is key when it comes to managing money for young adults. That means practicing delayed gratification and strict budgeting.
Costly surprises pop up all the time. This makes it even more important to regularly practice financial discipline. But the sooner you can practice such discipline, the sooner your finances will be in order, as a matter of habit.
We have some good news and some bad news here.
The good news is that tracking your spending and forming and adjusting a personal budget is now easier thanks to technology.
Mobile apps put this power into the tips of your fingers. A budget app takes your inputs and can categorize your spending, showing you your habits with visual representations. They are a great tool for helping you set a budget.
The bad news is that you are going to start adulting during a difficult time, financially. Costs for many things, including many groceries as well as housing costs are very high now. Your wages as a young adult will normally make this balance difficult to achieve without first achieving the subject of step one.
Regardless, economic conditions change, you will likely switch jobs and see changes to your income, etc. But the values of discipline and budgeting will always be there.
Bad things happen.
There are a million things that could start making your life difficult, starting today. That’s why it’s good to focus on building an emergency fund before aiming for other goals, including building a comfortable home or investing.
Emergency funds are savings accounts specifically reserved for emergency situations. They are meant to cover your basic living expenses for a few months should you be unable to keep working or face a sudden financial challenge.
After you have emergency savings, it’s never too early to start saving for retirement.
It may be difficult to set aside a lot for retirement in many young adults’ situations. That’s fine. But remember that time is your most powerful ally for long-term investments and every single year is extremely powerful when you’re talking about compound interest.
Company-sponsored retirement accounts are the easiest choice when you’re trying to start saving for retirement early.
You get to put pre-tax dollars into savings while your employer matches your contribution. If you’re fortunate enough to be in a situation where your employer will match your 401(k) contributions, it makes perfect sense to take the offer.
If you have a regular job and 1040, it’s easy to simply forget about the intricacies of taxation.
But even if this describes your situation, learning how your taxes work can save you money.
For starters, when you see your “salary” at a new job, you will need to consider how much money you will have after taxes. It is that amount that you will have to base your expectations.
This will help you have a more realistic idea of how to meet your immediate obligations and your retirement and other long-term goals.
This is another area where online calculators and apps can help.
Then there’s also the question of deductions and credits. If you’re self-employed or manage a business, these opportunities to save are often critical. But most people can claim certain itemized deductions. For example, all homeowners can claim the mortgage interest deduction.
This advice is obvious, but many people are surprised by the enormous financial impact that health challenges can have.
Then, if you aren’t well-covered by insurance, what happens if you get stuck with emergency care costs? Emergency room visits can make monthly premiums look like a steal.
It makes sense to:
Common-sense health advice applies here. We all know what a healthy diet and lifestyle entails in general. We also all know which choices will harm your long-term health.
Given that many conditions pop up even in people with healthy lifestyles, managing your health daily should be seen as an ethical and financial responsibility, ideally.
When it comes to managing money for young adults, there are a few important things to remember:
They may not have taught you much about personal finance in school or at home.
But at the end of the day it’s each adult’s responsibility to understand their financial responsibilities. Fortunately, with the simple efforts of acquiring knowledge and building healthy habits, you can ensure a better financial future for yourself.
June 30, 2022