A “Finance for Young Adults” class is not usually part of the high school curriculum. This unfortunate oversight leaves many young people unsure how to manage money, get credit, and stay out of debt. Although there has been some progress, 23 states in the U.S. require a personal finance course. 25 needed an economics course to graduate high school in 2022. This unfortunate oversight leaves many young people unsure how to manage their money, apply for credit, and stay out of debt. 1
While primary economic and financial education should be available in high school, more is needed to prepare the next generation. However, young adults entering the critical post-high school years must also learn core lessons about money.
1.You can practice self-control by paying with cash, not credit.
If your parents were good, you might have learned self-control as a child. You might have yet to learn this vital life skill, but it will help you keep your finances in order.
It is very easy to be responsible with your finances. You can save money by waiting until you have enough to make all your daily purchases with a credit card. A debit card takes money directly from your checking account , but a credit card is a high-interest loan unless you have the funds to repay the entire balance each month.
If you have a terrible habit of buying all your goods on credit cards, you will not only be paying interest on a pair or box of cereal but could also be still paying that amount in 10 years.
Credit cards can be handy. Some offer great rewards. You can also build your credit score by paying off the card on time. It is essential to use credit cards to your benefit, not to the lender’s advantage. Only use credit cards in emergencies. Always pay the balance when you receive it. Only apply to some credit offers that you get. Also, only have one card.
2.Avoid bad advice: Be educated.
You can’t manage your money if you don’t learn how to. Other people will try to do it for you. Unscrupulous financial advisors are one example of someone who could be malicious. While others may be good-intentioned, they might not be fully aware of your situation. For instance, relatives who make general recommendations about how important it is to own a house, even though you cannot afford to purchase right now, would recommend taking out a risky adjustable-rate mortgage.
Only rely on qualified advice. Take control of your financial future by reading basic books about personal finance. Don’t let anyone stop you from gaining knowledge.
3.Get a Budget to Know Where Your Money Is Going
After you have read some personal finance books, you will understand the importance and repeatability of two rules every personal finance advisor uses. Keep your spending under your income and watch where it goes. Budgeting is the best way to do so. Personal spending plans are also helpful in keeping track of the money coming in and going out.
It can be a useful wake-up call to see how much coffee you spend each month. You can make minor adjustments to your daily expenses, like buying coffee at home. This is unlike a salary raise, which is usually in your boss’s hands.
You can save even more money by keeping your monthly rent and other expenses as low as possible. You can still afford a luxurious apartment, but a simpler location and the ability to save money could help you buy a condo or house sooner than your friends who rent high-end apartments.
4.Make sure you pay yourself first: Create an emergency fund.
The most popular mantra in personal finance is to pay yourself first. This means that you should save money for emergencies and the future. This simple strategy will keep you financially safe and make it easier to sleep at night. You can put at least a portion of your monthly income into an Emergency Fund, even if you have the tightest financial plan.
Another benefit is that if you start to save money every month, you’ll stop considering savings an optional expense and treat it as a monthly expense. You’ll soon have more than emergency cash saved- vacation, retirement, and even down payment money.
Your cash will always be available and secure if it is in a standard savings account. This account won’t earn any interest, so that inflation could devalue your savings. Instead, you can put your funds in a high yield savings account, short-term certificate-of-deposit (CD), or money-market version. Make sure your savings vehicle allows you to access your money quickly in an emergency.
5.Save for retirement now.
You need to plan for retirement in the same way your parents sent you off to kindergarten to prepare for success in a world that seemed endless.
It is a great way to start on the right track. Start your retirement fund as soon as possible. The easiest way to describe compound income is “interest on interest.” This means you will not only earn interest on the principal money you invest but also on the interest money that the bank pays for holding your principal.
Compound interest can increase your savings by accelerating your money’s growth faster than simple interest based only on the principal.
Why not start saving for retirement as soon as you are 20? Because of compound interest, the earlier you start saving the more principal you will need to save to have the amount you need when you retire.
The best option for retirement planning is company-sponsored plans. You can put in pretax money, which lowers your income tax. Companies will match part of your contributions, which is almost like having free money. The contribution limits for an individual retirement account (IRA) tend to be higher than those for 401(k).
Don’t worry if you don’t have a company plan. Setting up retirement plans is possible for self-employed workers. Others may open their IRAs. This allows them to withdraw a fixed amount each month from their savings and then contribute directly to their IRA. Even though it is small, it can add up over time to something significant.
6.Keep on top of your taxes.
Understanding income tax is important before you get your first paycheck. If a company offers a starting salary, it is important to determine if it will be enough after taxes to satisfy your financial obligations. Smart planning can also help you reach your retirement and savings goals.
Many online calculators can help you determine your after-tax income. These calculators include PaycheckCity.com . They will show you your gross earnings , taxes, and net salary .
Another scenario is that you are considering changing jobs to increase your salary. You’ll need to know how your marginal Tax Rate (the tax rate you pay for additional income) will affect your raise.
Take the time to learn how to do your taxes. It’s easy to do your taxes, even if you don’t have complicated financial circumstances. Tax software makes it much easier to do your taxes yourself. You can also file online with the software.
7.Protect Your Health
What if it is impossible to pay your monthly premiums for health insurance? How will you get to the emergency room to treat a minor injury such as a broken bone that costs thousands of dollars? Take your time if you aren’t insured to get insurance. It is easier than you might think to get into a car accident or fall flight stairs.
Employers may offer health insurance. This includes high-deductible plans, which can save money and allow you to qualify for a health savings account. You can also purchase insurance through the Health Insurance Marketplace under the Affordable Health Care Act. Compare rates from various insurance companies to find the best rate. Compare your options to determine if you are eligible for a subsidy based on your income. A more costly plan may be best for you if you have medical issues.
It is also a smart financial decision to incorporate staying healthy into your daily life as soon as possible. It’s easy to maintain a healthy lifestyle. Keep your body healthy by eating fruits and vegetables, exercising, avoiding smoking, limiting alcohol intake, and driving defensively. These behaviors will not only make you feel healthier, but they can also help you save money on future medical bills.
The plan includes incentives for states to participate in the expansion of the Affordable Care Act (ACA). This could potentially extend healthcare coverage to more than 3 million people who are not currently insured.
8.Protect your wealth
You can immediately ensure your hard-earned cash doesn’t disappear in an emergency. These are smart steps to consider, even if they’re outside your budget.
Renters should get renter’s insurance to protect their homes from fire or burglary. To see what is covered and what is not, carefully read the policy.
Disability insurance protects the most important asset of your financial portfolio–your ability to earn an income. It provides a steady income if you cannot work due to illness or injury.
A fee-only financial advisor can provide impartial advice if you need assistance managing your money. A fee-only financial planner is not a commission-based advisor who makes money by helping you invest in the company’s investments.
Protecting your money from taxes is also important. This is possible with a retirement account. You can also prevent inflation by making sure your money earns interest.
You should learn as much as possible about the investment vehicles you are considering to help you protect your savings. They all have different levels of risk and potential growth. High-interest savings accounts and money market funds are safe. However, your money will grow slowly. Stocks, bonds, and mutual funds are riskier. Your portfolio’s value could plummet, but there is still a lot of growth potential.
The bottom line
To become an expert in managing your finances, you don’t have to get an MBA in finance. These eight rules will help you get on the right track to financial security. This is the foundation for your future.
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