Unfortunately, personal finance is not a required subject in most high schools or colleges. This lack of basic financial education leaves many young adults clueless about how to manage their money, applying for credit, and how to get or stay out of debt.
To help you get started, we’ll take a look at eight of the most important things to understand about money. These financial tips for young adults are designed to help you live your best financial life.
1. Learn self-control
If you’re lucky, your parents taught you this skill when you were a kid. If not, keep in mind that the sooner you learn the fine art of delaying gratification, the sooner you’ll find it easy to keep your finances in order. Although you can effortlessly purchase an item on credit the minute you want it, it’s better to wait until you’ve actually saved up the money. Do you really want to pay interest on a pair of jeans or a box of cereal?
If you make a habit of putting all your purchases on credit cards, regardless of whether you can pay your bill in full at the end of the month, you might still be paying for those items in 10 years.
If you want to keep your credit cards for the convenience factor or the rewards they offer, make sure to always pay your balance in full when the bill arrives, and don’t carry more cards than you can keep track of. This financial tip is crucial for creating a healthy future for your credit history.
2. Know where your money goes
Once you’ve gone through a few personal finance books, you’ll realize how important it is to make sure your expenses aren’t exceeding your income. The best way to do this is by budgeting.
Once you see how your morning java adds up over the course of a month, you’ll realize that making small, manageable changes in your everyday expenses can have just as big of an impact on your financial situation as getting a raise.
In addition, keeping your recurring monthly expenses as low as possible will also save you big bucks over time. If you don’t waste your money on a posh apartment now, you might be able to afford a nice condo or a house before you know it.
Act Now For A $750 PayPal Gift Card
3. Start an emergency fund
One of personal finance’s oft-repeated mantras is “pay yourself first.” No matter how much you owe in student loans or credit card debt, and no matter how low your salary may seem, it’s wise to find some amount—any amount—of money in your budget to save in an emergency fund every month.
Having money in savings to use for emergencies can really keep you out of trouble financially and help you sleep better at night. Also, if you get into the habit of saving money and treating it as a non-negotiable monthly “expense,” pretty soon you’ll have more than just emergency money saved up: you’ll have retirement money, vacation money, and even money for a down payment on a home.
Don’t just sock away this money under your mattress; put it in a high-interest online savings account, a certificate of deposit, or a money market account. Otherwise, inflation will erode the value of your savings.
4. Get a grip on taxes
It’s important to understand how income taxes work even before you get your first paycheck. When a company offers you a starting salary, you need to know how to calculate whether that salary will give you enough money after taxes to meet your financial goals and obligations.
Fortunately, there are plenty of online calculators that have taken the dirty work out of determining your own payroll taxes, such as PaycheckCity.com. These calculators will show you your gross pay, how much goes to taxes and how much you’ll be left with, which is also known as net, or take-home pay.
For example, $35,000 a year in New York will leave you with around $27,455 after taxes without exemptions in 2019, or about $2,290 a month.
By the same token, if you’re considering leaving one job for another in search of a salary increase, you’ll need to understand how your marginal tax rate will affect your raise and that a salary increase from $35,000 a year to $41,000 a year won’t give you an extra $6,000, or $500 per month—it will only give you an extra $4,195, or around $350 per month (again, the amount will vary depending on your state of residence).
Act Now For A $750 PayPal Gift Card
5. Protect your wealth
If you want to make sure that all of your hard-earned money doesn’t vanish, you’ll need to take steps to protect it. If you rent, get renter’s insurance to protect the contents of your place from events like burglary or fire. Disability income insurance protects your greatest asset—the ability to earn an income—by providing you with a steady income if you ever become unable to work for an extended period of time due to illness or injury.
If you want help managing your money, find a fee-only financial planner to provide unbiased advice that’s in your best interest, rather than a commission-based financial advisor, who earns money when you sign up with the investments his or her company backs.
You’ll also want to protect your money from taxes, which is easy to do with a retirement account, and inflation, which you can do by making sure that all of your money is earning interest through vehicles like high-interest savings accounts, money market funds, CDs, stocks, bonds, and mutual funds.
Act Now For A $750 PayPal Gift Card