7 Practical Financial Tips for Young Adults
For most young people, handling money often seems like a demanding or complex task to embark on.
Employed youths often spend all their monthly earnings while having nothing to fall back on in the event of an emergency. This is mainly due to several factors such as a high cost of living or maybe their income being deficient to match their essentials.
They yearn to save but can’t seem to actualize it, and that creates a huge disconnect around saving money: one knows they have to do it and desire to do it, but can’t seem to get around it.
In this article, we look at 10 practical tips that young adults can easily use to improve the management of their finances
Table of Contents
Track Your Spending
This is the initial stride toward cutting your costs, and it simply means figuring out what you spent your money on.
By tracking your consumption patterns daily for at least three months, it will astonish you to discover how much you spend on foodstuff, for example, or entertainment.
Tracking your spending is one of the most vital steps in financial management as it gives you a pretty decent theory of what your consumption is on average, say monthly, and this will uncover any spending issues.
From this, you can then make modifications to improve the management of your finances.
Determine Your Income
Every paycheck or pay slip outlines how much you’ve made over a specific period, and it likewise reveals any deductions that might have been carried out.
Once you receive your income, find out what your net pay is: how much is left of your income after all the reductions have been made.
This step is more so significant to individuals with diverse sources of income because many have trouble finding out how much they have made in a certain time frame.
It’s imperative that you track all your revenue streams separately so ultimately you can figure out your overall gains. Make sure you have detailed and correct data on your income, as this will help you make better decisions when it comes to financial management.
Make a Budget
A budget is an approximation of your returns and obligations over a specific period. Coming up with a budget will not only help you manage your finances, but it’ll also help you save for emergencies, retirement, or any other goals that you wish to accomplish.
There are several approaches to budgeting, but one of the easiest and most practical budgeting approaches is the 50/20/30 budget approach.
The 50/20/30 budgeting rule is straightforward and tells you explicitly how much to put towards your savings and costs monthly. The basic rule of the 50/20/30 budget is to divide your monthly after-tax income into three spending categories: 50% for needs, 30% for wants, and 20% for savings.
Needs are the fundamentals for survival or say the bills that are must pay. Rent, health insurance, groceries are examples of needs or must-haves. At most, half of your net pay should cater to these needs.
If you find yourself spending more than half of your net pay on needs, cut down on these costs or adjust your lifestyle by perhaps renting a cheaper apartment or cutting down on grocery shopping.
30% for Wants
Wants are the non-critical overheads or things that you choose to devote your cash on. These include gym membership, entertainment subscriptions such as Netflix, ultra-high-speed internet, or even that luxurious duffle bag or handbag you’ve spotted on an online store. The 50/30/20 budget allocates 30% of your net pay on wants.
20% for Savings
With 50% of your net pay going to needs and 30% on wants, stash 20% of your money on savings and investments. You can, for example, invest in the stock market or open a bank savings account. You can also use this provision to pay off your arrears. This will reduce the amount of interest paid overtime, and it will help improve your credit score.
Investing is primarily allocating a part of your savings on an endeavor with the prospect of generating income or making a profit. Investing is very vital if you are keen on improving your financial security and stability.
Before you invest, have a goal: this will help guide your focus. Identify the best investment prospect, find out if there are any risks associated with the particular investment, and figure out a way around them. This is key to avoiding losses.
When done right, investing is critical towards achieving your financial goals.
Cut Down on Your Bills
We all have financial goals, and one way to accomplish them is to cut down on unnecessary expenses.
It could be that $20 monthly service you signed up for 5 years ago but rarely use, or the excess groceries in the fridge that end up going bad every time, but you keep spending on them.
You are not alone, many people purchase things they don’t need, and they do this consciously or unconsciously. Before you purchase an item, make sure that it makes practical sense, financial sense, and emotional sense.
This means that you will use the item or service, you can pay for the item and you feel good about your choice to buy that item even a week after purchasing it.
By assessing what you devote your money to, you can eliminate indulgences and save more.
Finally, don’t be shy about negotiating prices where possible and also making cost-saving swaps on your needs and wants.
Adopt a Simple Lifestyle
As easy as this sounds, many young people find this challenging. Most of the time as a young adult, you want to impress your peers by living large and associating with the big spenders.
By adopting a simple life, you focus less on material wealth and more on the things that money can’t buy, such as strong healthy relationships.
Living simply, however, does not mean depriving yourself of necessities, it means trading in a fast-paced, high-stress lifestyle for one that you can afford and one that you are proud of.
By adopting a simple life, you spend less and avoid common stressors, which makes you happier and healthier while saving you a lot of money.
Diversify Your Income Streams
Diversifying your income streams means expanding your revenue sources to supplement your current job.
Here, you can open a side business, for example, and monetize your hobbies. If you love to bake, for instance, you can start baking cookies and selling them at your workplace. If you love to write, you can start a blog or become a freelance writer.
This will not only put your creative side to use, but it will also give you financial security and independence.
Diversifying your income can help provide financial stability when faced with layoffs because of economic declines or even because of sickness.
Be careful, however, not to let your side income streams jeopardize your full-time job unless you are very confident that you can live without it.
The Bottom Line
Managing personal finances isn’t as complicated as it may seem. All you need is to set your financial goals and stick to them.
Taking small steps towards fulfilling these goals can lead to big results. Incorporate the above7 tips into your life and they will get you on the right path towards being financially free and stable.