As a young adult it is very easy to become overwhelmed about planning for retirement and investments, especially in a fickle economy. However, the sooner one starts, the more of an advantage they are at to making financial decisions that will pay off in the long run. Here are some financial tips for young adults to get one started on the path to saving and security.
Before You Start
An important financial tip for young adults is to create a goal before starting down the path of saving. What are the most important goals to you? Some major common ones are saving for a car, house, or some big purchase, paying off student loans, and retirement. Other smaller goals include saving for a overseas trip or new technology such as a computer or new phone. Whatever it is, it helps to visualize it before trying to figure out how much you need to save every month.
Start By Saving and Investing
The most common and basic of advice, yet some people still have trouble with saving. Saving as early as possible is essential to creating stability in your financial life and is the more secure way to ensure a comfortable retirement. Although saving $1 out of every $3 you earn sounds like a lot (and is a lot), that sacrifice and struggle now will pay off in the long run, especially when certain events cause a major dent in your budget. It is better to have that money prepared later than to scramble for last minute funds or take out loans with ridiculous interest rates that will hinder you financially for a long time. The savings fund that you started early in life could be very beneficial in bad cases such as a lay-off or high medical bills or in good cases such as starting your own business. Whatever it is, the financial tips that you base your strategy on will help you get ahead in the long-term.
One mistake people make is waiting too long to start investing. One financial tip that young adults should strongly consider is to invest when they get their first job. Take advantage of your company’s 401(k) or IRA plan, or even open up a retirement account for yourself if neither option is available to you. Start with a low percentage of your salary in which you can afford, and work your way up to higher percentages that you can put away. The more you save now, the bigger your investment will be in the long-run.
Organize and Prioritize Your Debts
As a recent graduate, one of the most daunting things may be your student debts. However, with time and careful organization, you’ll be able to tackle your debts no problem. First, list and figure out which debts require payments first, such as a credit card, in order to avoid getting hit with penalty fees. After meeting your financial obligations, if you have funds to spare, consider paying off debts starting with those with the highest interest rate. Your lowest payment may not have the lowest interest rate, so make sure you find out which debt carry what kind of interest rate. For example, paying off $100 a month with a 1% interest rate could wait compared to a $25 a month bill with 25% interest rate. Also, make sure when you are making a prepayment on a loan, you are paying towards principal only, to reduce the total amount you owe. Although your student loans may be the biggest, consider putting them off until the end, due to their flexibility offered compared to other forms of debt. When you can, you can focus on paying off all but your cheapest student loans. Make sure you read your loan agreements and ask your lender questions when you are unsure about something as soon as possible.
Keep a Rainy Day or Emergency Fund
For those really unexpected events, keep an emergency fund where you are able to have access to immediately in a liquid account, such as a money market account or a short-term CD that will not penalize you for early withdrawals.
Find Your Dreams and Treat Yourself Out Once Awhile
What are your long-term dreams? What would make you happy to be doing for the rest of your life? Look within and brainstorm until you reach a conclusion whether it takes days, weeks, months, or even a few years. Find out what your natural skills and abilities are and find a career that will help you maximize your gifts in a way that makes you happy or helps others in need. Your first few careers may change down the line, but for now follow these financial tips for young adults, work in a field that you feel comfortable in, and save up for your dream, such as starting a business or non-profit organization.
Saving is hard work no matter at what age and it is unrealistic to sacrifice every short-term pleasure in life in hopes of long-term security and success. Although it is important to follow your budget and pay off your debts, leave room for those occasional splurges or night out, but make sure it doesn’t become a frequent routine. Enjoy your youth and look forward to your future.