Let’s face it, the vast majority of millennials and Gen Zs grew up in households where money was seldom discussed. It also doesn’t help that schools don’t teach learners the basics of how to be financially stable. As a result, many young people come into their twenties not having the slightest financial literacy, which sets them up for many years of financial hardship.
But there’s still hope if you’re a young adult struggling with financial instability. Here are four practical tips you can apply today to take charge of your current financial situation and improve your prospects for a better financial future.
Practice Budget
When you’re a young adult with few responsibilities, it’s easy to throw caution to the wind and spend most of your money on things you don’t need. Unfortunately, failing to account for your spending is one of the quickest ways to drive yourself into dire financial straits.
Budgeting for your money is an effective strategy that helps you control your spending and become more accountable for your finances. The concept of budgeting is fairly straightforward. You simply need to figure out how much money you’re bringing in and how much you’re spending, then commit to only spending on things you can afford.
The great thing about learning how to budget is it helps you identify where you might be spending money needlessly. As a result, you can determine what items you need to cut down your spending on and, in doing so, create more disposable income.
Start Saving for Retirement
Many young adults tend to hold the incorrect view that saving for retirement is a preserve of older people who are more established in their careers or on their way toward leaving the workplace. This couldn’t be further from the truth.
Saving for retirement is critical for young adults, and starting early can work in your favor. Based on how compound interest works, starting your retirement savings in your 20s means you’ll need to invest less principal in cumulating the amount of cash you need to retire comfortably. Also, the sooner you start saving and stay consistent with it, the greater your chances of retiring early if you wish to do so.
Set Up an Emergency Fund
No matter how many monthly expenses you have to cover with your limited income, it’s always a good idea to put a percentage of your income in an emergency fund. Having an emergency fund, or “rainy day” fund, can help you avoid financial trouble in the event of an unforeseen emergency like losing your job, an accident, or an illness.
Also, when saving for emergencies, don’t just stash the cash in your house somewhere. Instead, please put it in a high-interest savings account so it can start compounding; otherwise, it will be eroded by inflation pretty fast.
Use Credit Wisely
As a young adult, it’s easy to fall into the trap of overspending and blowing up your credit, thinking you’ll simply pay it later. The truth is, failing to manage your credit usage can quickly set you down the road of runaway debt, which you’ll struggle to pay back, especially on an entry-level paycheck. This can seriously cripple you financially and damage your credit score, thus locking you out of specific financial opportunities like getting a mortgage later on.
A Final Word
If you’ve noticed that some of your financial habits are getting you into trouble, it’s never too late to turn a new leaf. Applying the tips highlighted here will help you gain better control of your finances and ensure you thrive in the long run.
If you need expert help with financial planning, contact our professionals today at Gurian CPA Firm.
