Young adulthood is a time for experimentation, making mistakes, repeating them, and learning from them. From carelessly spending on gadgets to dining out every night, many young adults think they are invincible and have an endless supply of money. However, this is not the case, and sooner or later, they will have to face the music.
Remember when your mom used to nag you about saving your allowance? Well, she was onto something. Saving is a critical part of financial planning. It helps you prepare for unexpected expenses and gives you a cushion to fall back on in tough times.
However, the world of finance doesn’t have to be a scary place. With little planning and foresight, anyone can get their finances in order, even when they know nothing about managing money. So, without further ado, let’s talk about financial planning for young adults.
Table of Contents
Why is Financial Planning Important?
Prepare for The Worst:
It’s an unpredictable and harsh world when it comes to money. However, a little financial planning can go a long way in helping you deal with life’s many curveballs.
For example, let’s say you lose your job. Without any savings to fall back on, you might take on debt to make ends meet. It can seriously impact your financial future and put you in a difficult position. Plenty of online will services can help you plan your finances and protect your loved ones in an unforeseen event!
Enjoy a Better Living Standard:
We all know this age attracts a lot of expenses like buying a car, getting married, etc. So, if you want to live a comfortable life without being stressed about money, you need to start planning early. Creating a financial plan will help you understand where your money is going and how much you need to save to reach your goals. It will allow you to make informed decisions about your spending and help you live a better life.
So, there you have it. These are just a few critical reasons financial planning is essential for young adults. So, if you are ready to fill up your piggy bank, these tips will come in handy.
Financial Planning Tips:
Start Small:
Every penny counts, so start saving whatever you can. Even if it’s just $50 a month, it’s better than nothing. You can gradually increase the amount as you better handle your finances. We know you want to buy the latest iPhone as soon as it comes out, but trust us, your future self will thank you for saving up instead. Practicing self-control will be your fairy godmother in this story.
The 50/30/20 Rule:
It is a straightforward and effective rule that can help you manage your finances. The rule states that 50% of your income should include rent, food, and transportation. Then, you can spend 30% on wants, such as entertainment and dining out. The remaining 20% should be saved or invested.
Create a Budget:
A budget is a tool that will help you track your spending and ensure that you are sticking to the 50/30/20 rule. There are many different ways to create a budget, so find one that works best for you. For instance, you can use a spreadsheet or budgeting app. In addition, apps like You Need a Budget (YNAB) and Mint is great for helping you stay on track.
Set Financial Goals:
What are your financial goals? Do you want to purchase a house, begin a family, or retire early? Yes, we realize it’s too early for retirement plans, but the sooner you start saving, the better. Figure out how much money you need to reach your goals and work towards them. There’s a possibility your calculations and evaluations will take you to the side hustle world.
Understand Taxes:
You don’t necessarily have to be a Master in Taxation to understand the basics. However, knowing how taxes work will help you make better financial decisions. For instance, you can take advantage of tax-deductible expenses to reduce your taxable income. It will help you save money and lower your tax bill. There are three types of taxes: income tax, sales tax, and property tax to give you an overview.
Start an Emergency Fund:
An emergency fund is a stash of cash that you can tap into in case of an emergency. It’s there to help you cover unexpected expenses, such as a car repair or medical bill. You should aim to save at least $500-$1000 to have some buffer if something comes up. Instead of stuffing that cash in your backpack, consider a high-interest saving account or a short-term bond fund.
Invest in Your Future:
What you do today will help you tomorrow! So, start investing in your future by contributing to a retirement fund. If your employer offers a 401(k) plan, take advantage of it. If not, you can open an IRA account. You can also invest in a 529 college savings plan if you have children. The earlier you start, the better.
Make a Debt Repayment Plan:
If you are under credit card debt or have a student loan, make a plan to pay it off as soon as possible. The sooner you get rid of that debt, the better. Try to make more than the minimum payments each month to speed up the process. You can also consolidate your debts or refinance your loans to get a lower interest rate.
Take Care of Your Health:
Last but not least, take care of your health! Your health is your most important asset, so invest in it. Eat healthily, exercise regularly, and get enough sleep. Also, don’t forget to get insurance. Health insurance is a must-have if you want to protect yourself financially. If you’re employed and your employer offers health insurance, sign up for it.
Ending Note:
The feeling of contentment and satisfaction of being financially stable is priceless. It gives you a sense of security and allows you to live your life without being concerned about money. In addition, financial planning gives you the power to take control of your money and achieve your financial goals.
There is no need for a flashy degree or a trust fund to establish healthy financial habits. All you need is a little bit of knowledge and some self-control. So, take these tips and put them into practice. Your future self will thank you for it! While you’re at it, keep repeating ‘saving is sexy’ till it sinks in. Trust us; it works like magic!
Featured Photo by Lukas from Pexels
