Saving money is a lot more difficult than spending it. You can empty your bank account in one day, but it takes years of practice and healthy spending habits to save money, which comes in handy in tough times.
If you think financial planning is only beneficial for adults, think again. Most young adults start earning in their early teens. It means there is a recurring monthly inflow that your child needs to learn how to handle properly.
Here are some beneficial financial planning tips for young adults to teach them the value of money and how they can save their hard-earned finances.
6 Tips For Financial Planning For Young Adults
Here are some useful tips to help you manage your money maturely and get conscious about your spending habits at an early age.
Include Self Control In Primary Habits
Self-control is more of a skill than a naturally existing personality trait. A person with self-control can handle his emotions and utilize resources in a much better way. For instance, you come home with your monthly earnings with a massive urge to order a takeaway while food is at home.
A person with a high percentage of self-control would absorb those cravings and save money for larger goals — for instance, the new iPhone or a PlayStation. Contrarily, someone with low self-control would dive into their cravings and order the snack the heart wanted.
Self-control focuses on repressing your desires for when the time is right. Instead of going shopping and coming home with an empty bank account, save double your shopping budget and come home with enough funds.
Apart from controlling baser urges for something supreme, elf control teaches you the value of things you already have. It shows that the world does not end if you opt for certain things. Let’s say you buy five pairs of similar jeans every season. Would it really affect your lifestyle if you got three or two?
Lastly, let’s not confuse financial self-control with neglecting your basic needs. You should spend money where necessary and opt for occasional treats for yourself. Don’t go overboard and take out cash when it’s unnecessary.
Prefer Cash Over Credit
Credit cards provide quick access to your desired things, even without cash. Some banks even offer irresistible deals for those who pay through other credit cards. However, you need to remember that you will be paying for the purchases made through a credit card in the coming months, maybe years. Simply put, you can call it temporary satisfaction, followed by a high-interest loan.
This is why we recommend saving money first before buying something. Use cash or opt for a transaction through your debit card. A debit card deducts money from your account with little to no tax and does not leave you with a sizable loan for the coming months. Similarly, paying upfront for your purchases allows better budgeting and helps you avoid going overboard than what you can afford. Banks also offer debit cards for teens with certain limitations for safe transactions.
Credit cards can be addictive — especially if you like to make instant purchases. But they are also quite beneficial if you put them to good use. Making timely payments from your credit card helps you build a good credit score. A good credit score reflects well when trying to take out a loan or rent a house in the future.
Determine a Budget
Regardless of your age, having a set budget for all your expenses is essential. Most people have three types of expenses: regular, seasonal, and rare. Your regular expenses are purchases that revolve around everyday essentials such as groceries, toiletries, subscription payments, and bills. It can be more or less depending on how financially independent you are. A monthly budget takes away most of your paycheck and is something you find hard to live without.
Next, we have the seasonal expenses that occur after every four to six months. You can include things like holiday shopping, buying clothes after a change of season, or a birthday gift. You can save from your monthly income to easily make any seasonal purchases.
Rare expenses are the items that people buy piggy banks for. It includes a range of expensive things that most people need to save considerable cash to buy.
A budget ensures that your expenses are aligned with your income. It helps you prioritize things you need and should be paying for.
To successfully create a budget:
- Make a list of all the possible expenses you have every month.
- Think about the things you can and cannot live without.
- Jot down your income and compare it against the price of things you are planning to buy.
- Set aside an emergency fund and your monthly savings.
Follow your budget precisely and track all the mandatory spending. It may take you a while to adjust to the changes, but being short of money will never be a thing once you do.
Save for Emergencies
Pay Yourself First is a commonly perceived concept by many financial gurus. It simply implies that one must save money for emergencies and the future. Having an emergency fund is a simple technique involving much self-control. However, you will remain in financial peace without any burden or debts.
We understand you’re young and probably not earning as much as you would in a few years. But cutting corners and putting money in your emergency account every month is still possible. Instead of opting for a complicated plan, we recommend taking a small chunk out of your monthly income and setting it aside.
Once you start treating savings as a compulsory part of your monthly plan, it will get easier to leave out certain things that aren’t very important. Emergency funds can come in handy under a bunch of scenarios. For example, if you suddenly lose your job, there will be enough money to get you by until you find a new one. Or if a dear one needs some amount, you can always be a helpful friend by lending them a chunk.
Emergency funds are just a start. With proper financial planning, you can easily save enough to pay for education, buy a house or car or gather retirement funds with time.
Instead of using your current account, open up a savings account that pays you back an interest amount under some conditions.
Educate Yourself About Financial Planning
As a young adult just starting their career, many people may come into your life, trying to tell you what you should do with your money. Some might have good intentions but lack knowledge, while others may not be truthful in regard to their intent. Well, unless it’s your parents, shut them down. The only people who succeed in financial planning are the ones who know what to do with their money.
One of the most important reasons to keep yourself educated and on track with your financial goals is to avoid falling for scams. You need to figure out a way to plan finances like a pro. While learning, bring your smartphone to good use and install finance planning tools that are more efficient in analyzing your expenses and creating a budget.
While you are out there gaining financial wisdom, make it a rule to not disclose your income and future plans to others. Just stick to your goals and remember that everyone else and these temporary enjoyments can only cause you to dive into unwanted debts and lack of resources.
Establish Your Long-Term Goals
Where do you see yourself in five to ten years? It can be a new job, starting your business, or maybe getting rid of your student loan. Just think about the position where you want to see yourself and plan your finances around that. Setting long-term goals help you stay on track and ensure that you can meet your targets.
Make a budget and establish how you will meet your goals without compromising on other necessities of life. Once everything is finalized, follow it without any last-minute compromises or changes. A lot of people neglect the idea of keeping their goals achievable. It becomes an issue in the longer run, leading to chaos and confusion.
A wise tip in this matter is to create SMART goals. SMART goals streamline and structure your objectives, helping you achieve higher success with maximum clarity.
SMART stands for:
- Specific
- Measurable
- Attainable
- Realistic
- Time-Based
Although this method of creating goals helps achieve both short and long-term targets, it is essential that you be realistic and set a time frame. Stay positive and evaluate the changes after you introduce SMART goals in your financial plan.
Plan Finances As a Young Adult
Financial planning is essential for people of all ages. You need to establish targets and create a budget for different expenses. While you are at it, increase your knowledge about financial planning to have a more realistic approach to life.
Learn to have self-control and spend your money where it is absolutely necessary. In the end, you will have enough savings to fulfill your desires and live a very comfortable life.
You may take a while to adhere to a budgeted lifestyle with limited spending and a clear vision for long-term goals. However, after adjusting, it will become a mandatory part of your life that makes you a stronger person with better control over your urges.
