7 Financial Tips for Young Adults 

298
Young couple financial planning at home with tips for young adults

Nowadays, schools provide young people with minimal practical financial literacy skills. Sure, they teach them the basics, but they can only take you so far. As a result, many young adults make unwise financial decisions as they gain financial independence. While we learn through making mistakes, some can significantly impact the first portion of your life. So, to help you make wiser financial moves in your early 20’s, here are some tips for young adults.  

Use cash, not credit 

In today’s society, consumerism and materialism rule the young generation. Buying brand-name shoes and clothes and having the latest devices is often seen as a good investment, which is a subjective opinion at best. One of the tips for young adults is to avoid the mistake we often see young people make. They get into debt early in life and then needing to spend the next 10 years or so paying that debt off.  

Because of this, we urge young adults to use cash as much as possible and spend within their means. Put simply, don’t spend money you don’t have. If you see something you like, avoid making an impulsive purchase. Instead, be self-controlled and save for it.  

Credit in itself is not inherently bad. In many cases, you might need to demonstrate a good credit score to purchase a house or a car. However, it needs to be used in moderation and wisely. That includes paying it back successfully before using it again.  

Practice financial literacy

Financial literacy simply refers to understanding the value of money and how to use it wisely. Those who are financially literate know how to budget effectively, what to spend their money on, how to save, and how to spot and avoid financial risks.  

Financial literacy isn’t something we’re born with. We need to learn it with practice and effort. Most of the time, those who are financially disciplined develop wealth and become successful because they use their money wisely.   

When you’re young, it’s understandable to want to enjoy yourself, and you often need money to do that. However, the wiser you are with your money when you’re young, the better off you’ll be in your advanced years. So, you’ll need to find the balance somewhere between the two.  

Start budgeting early

Budgeting is a great way to find this balance. Setting a budget allows you to allocate your income to specific monthly expenses. It helps you practice discipline, prioritizing where the money goes and limiting what you spend so that you can grow your financial health.  

A basic budget would look like this: You’d list your total income vs. your total expenses. Include your savings and investments in their own section or under expenses so they’re prioritised every month, too. Expenses are usually your rent, mortgage payments, car payments, groceries, entertainment, etc.  

Subtract your expenses from your total income, and what’s left over is what can be used for basic living expenses, extra savings, or entertainment. To further divide your budget and create space for everything you need, you can utilize the 50/30/20 rule (necessities/wants/savings). To get a better picture of your finances and how to split your budget, you can easily use the 50/30/20 rule calculator. By doing this, you’ve prioritized all your essentials while still putting money towards your future. 

Create a rainy-day savings account

Most young adults nowadays are millennials or part of the Gen Z generation, so they’d understand the term YOLO (You only live once). Many young adults adopt this ideology of living, spending all their income on enjoyment because, you know, YOLO. However, planning for a rainy day is extremely important and a part of life.  

A rainy day savings account is a backup savings account used to support you in an emergency. Life is unpredictable and full of surprises. You never know whether you’ll need that extra income to offset a sudden, unexpected expense. In general, saving 3 to 5 times the amount of your monthly salary in your rainy day savings is advised.  

Open a retirement savings account ASAP

A vital financial investment that every young adult should make when they land their first job is to open a retirement savings account. In Australia, roughly 30% of individuals don’t save towards retirement and would likely need to continue working through retirement or rely on their kids for financial assistance.  

The earlier you start your retirement account, like a super fund, the more time you give it to compound over the years, leaving you with a larger lump sum to retire on at 65 or earlier. You don’t have to start saving half your salary into your retirement account. Simply put in the minimum and allow it to grow with your salary over the years.  

Get health insurance

Getting health insurance is one of the main tips for young adults. Health issues and injuries can drastically cut into your financial health in two ways. Firstly, healthcare can be relatively expensive if you pay out-of-pocket rates. Secondly, particular injuries can significantly limit your ability to work and earn an income, leaving you in a difficult situation.  

To combat these risks, getting health and life coverage is essential. Getting medical insurance simply ensures that if you need to be hospitalised for any reason, your expenses are covered to the degree your insurance is contracted to cover. Likewise, most life covers promise a payout if you have a severe injury that limits your ability to function as you did before, paying you an amount to account for losses in income. Again, this depends on the type of cover you choose.  

Hire a financial advisor

Lastly, contact a financial advisor in Australia who can help you set up a financial plan and investment portfolio. This is the best way to start learning how to be financially literate and to get yourself on the right financial path. Consider contacting Solace Financial Planners for assistance if needed.  

Final Thoughts

Learning how to manage your finances effectively at a young age will set you up for success as you navigate the world like the rest of us. Consider the tips for young adults above, and better yet, apply them, and you’ll be taking a step in the right direction.

Subscribe

* indicates required