It is never too early to start thinking about how you will manage your money. Good money management is a habit that every young adult should adopt. According to the experts, learning how to budget at an early age, saving, and thinking about your financial future will set you up for financial success. Here are five financial tips you can start utilizing.
1. Start By Understanding Where Your Money Goes
This tip does not only apply to young adults it applies to anyone that generates an income. It often feels like money just flies out of your account after payday. Most people can not identify where the money goes. Even when you are planning and plotting how much your bills every month are, it can be easy to lose track of what is left over.
Have you ever heard the saying it is the little things that mean the most? This is true of where your money disappears to. It is the little things that you are spending money on every day that really can add up. Start by tracking every penny that you spend for a couple of weeks. Those daily coffees, lunches, the little extras that you purchase on your way to and from work. Be prepared to be shocked by how much you spend.
2. Have a Plan
Do you think that 25 or 30 is too young to think about retirement? It is never too young to think about retirement, nor are you too young to start saving for a house or other financial goals. It is important that you have a plan in place for both long-term financial goals and short-term financial goals. If you have a spouse and dependents you want to be sure that you also have an estate plan in place. You do not want to leave decisions up to the court for your spouse and kids when it comes to your estate. If you do not have a will the court will step in.
It is a lot easier to plan early for retirement and other financial goals. Putting a smaller amount of money to the side over a longer period is the best way to fit retirement planning and other financial planning into your lifestyle. It is never too soon to think about where you want to be thirty years from now financially.
3. Be a Savvy Consumer
When you are shopping for anything consider the value, not just the lowest price, especially when it comes to big purchases. Smart money management is not just about how you spend your money, it is also about what will put you in a position of saving some money as well. For example, a furnace can last between 15 and 20 years, if you have to make the purchase go with the furnace that has the longest warranty and a life expectancy on the longer end of things. It may cost you a little more right now but down the road, you will have to worry less and ultimately will save more.
Another example of a big purchase where you should really do your research and weigh your options is buying a new vehicle (or a used vehicle). Diesel fuel is typically more expensive at the pump which may make you think twice about buying a vehicle that uses diesel fuel. However, diesel has about 10%-15% more energy than regular gas. A vehicle that runs on diesel can get more mileage out of a gallon of diesel compared to a gallon of gas. As a matter of fact, it can get anywhere between 20%-35% more mileage. Overall, it may be the better deal.
4. Pay Yourself First
Develop the habit of paying yourself before you pay for anything else. Paying yourself means taking 10% of your earnings and earmarking it for savings. Make sure that 10% of your income is tucked away before you make any buying decisions. If you can arrange with your employer to direct deposit 10% of your earnings into a separate account then do that. You cannot miss what you do not have.
Also, take advantage of any “matching” program your employer offers for retirement. It is like getting free money. Contribute as much as you can to any matching program to get as much free money as you can.
5. Live Within Your Means
We have all heard anecdotes about people being able to sock away a million dollars on a school teacher’s salary, it can and does happen. Living within your means takes patience and practice, but it can put you in a much better financial position down the road. Be careful with your money, plan what to do with your money, and always have a goal in mind for your money.