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Financial Freedom: Essential Tips for Young Adults

mattlevy
Matthew Levy Updated: November 5, 2023 • 6 min read
two young men at a coffee shop

Key Points:

  • Creating a budget and sticking to it is one of the best things you can do to get started.

  • Long-term financial planning for young adults is important if you want to secure your bright and stable future.

  • Investing is all about making your money work for you, and the sooner you start, the better.

When considering personal finance advice tailored for you as a young adult, there is much to learn. Understanding the ins and outs of managing your money can help you navigate your financial challenges throughout your life, and the earlier you start, the better. From student loans to starting your first job, below will discuss money management for young adults and laying a solid foundation for a brighter, financially savvy future. 

Understanding the ins and outs of managing your money can help you navigate your financial challenges.

The Basics of Budgeting

First things first, you need to understand what budgeting is, one of the best bits of financial advice for young adults. Budgeting plans for young adults keep you on course and ensure you don’t drift away from your goals. Creating a budget and sticking to it is one of the best things you can do to get started, as it ensures you know where every dollar is going and helps you stay in control. 

If you’re ready to start, consider using a user-friendly budgeting app to track your income and expenses with little effort. This will be one of the better budgeting tips for young adults. You’ll need to track variable expenses like groceries and entertainment, allocating a specific monthly amount to each category and attempting to stay within or below your allocation. And, of course, don’t forget to set aside some of your income for unexpected life surprises, like fixing your car or a house repaired. A budget isn’t about restricting yourself - it’s about empowering you to have financial freedom and peace of mind. 

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Understanding Credit

The next thing to look at with financial tips for young adults is you need to review what credit is and understand how to use it appropriately. For example, having a good credit score can open doors to several opportunities for you, from getting your dream apartment to getting better rates on loans and credit cards. A good credit score is sort of like having a financial passport that shows the world you’re responsible with money. 

So, firstly, how do you build and maintain a good credit score? You can start by utilizing a credit card, but use it wisely. Make small purchases that you can pay off in full each month to show lenders you’re trustworthy and can handle credit responsibly. Pay your bills on time, every single time. Late payments on any sort of bill can really hurt your credit score. 

Another thing to help your score is to be aware of your credit utilization ratio - how much credit you’re using compared to your total available credit. A lower ratio shows you’re not overly reliant on credit. Aim to keep it below 30%, and the lower the better. 

Remember, building a good credit score doesn’t happen overnight. It requires consistency over time. Stay diligent, keep these tips in mind, and watch your credit score climb to unlock more financial opportunities for you. 


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The Power of Saving

Next up is savings. In your 20s, it will likely be more difficult to save as it is possible you won’t be earning as much, but it is important to understand the earlier you start, the better. You want to create a safety net and secure your future, and with the power of compound interest, time matters. 

When you first think about savings, you must start building up your emergency fund. There are plenty of times throughout your life when you will be hit with a curveball, and having an emergency fund in place will help you cover any short-term issues. Aim to save at least three to six months’ worth of living expenses. It might seem like a lot, but even small contributions can increase over time. 

Next, set clear, achievable goals for your future savings. Whether you want to park money away for a vacation, a car, or furthering your education, having a target gives you something tangible to work toward. Break your goals into manageable steps and start saving consistently. It’s not really about the amount when you start; it’s about building the habit of saving. 

Smart saving also isn’t about hoarding cash - it’s about being prepared and proactive. If you save wisely, you can secure your finances and invest in your future self. Embrace the power of saving smartly and how your finances grow over time. 

Investing for the Future

Next on the financial tips list is to talk about investing, which is the best way to build wealth, especially for beginners. Investing is all about making your money work for you, and the sooner you start, the better. Financial planning for young adults means investing and investing early.

The biggest advantage to starting early is something we touched upon above, which is the power of compound interest. Over time, the money you invest earns returns, and those returns start earning their own returns. It’s like a snowball effect on your finances, and even small amounts can grow into substantial sums over the years. Try out a calculator online to see the true effects. 

Where to start is the hard part. You should begin with some research to understand some of the different investment options available. Consider low-cost index funds or mutual funds, great for beginners due to the instant diversification and lower risk. Remember to invest according to your risk tolerance and time horizon, and ask a financial professional for help if you are unsure. 

Really embrace the habit of regular, consistent investing. Think of it as paying your future self, and the earlier you start, the more you reap the rewards of your investments down the line. Start today!

Managing Student Loans and Debt

A reality for young adults is that student loans and various other debts are around. But don’t worry too much; you need to plan to manage them as well as possible with the right strategies.

First, familiarize yourself with your loans, understand the terms, and know the interest rates and minimum payments. Knowledge is the first tool in managing your student loans and debts effectively. For debts like credit cards, prioritize paying off the ones with the highest interest rates first. 

If it makes sense for you, consider consolidating your student loans to simplify payments and potentially lower your interest rate. Be sure to weigh the pros and cons, as consolidation isn’t always the best option - consult a financial expert if you need advice. 

Effective debt management is about staying informed and making strategic decisions. Don’t ignore your debts, but instead tackle them head-on and track your progress. With diligence and the right approach, you can manage and eventually overcome your debts. 

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Planning for the Future

Long-term financial planning for young adults is important if you want to secure your bright and stable future. This is where you want to make the most out of financial planning for young adults, early and often. 

Start by defining your financial goals, both short-term and long-term. Try to come up with what you want to accomplish in the next five, ten, or twenty years. Once you have a clear vision, you can break down the goals into actionable steps and start working toward them. 

The earlier you start, the better it will be. The power of compound interest in your savings over time means the earlier you start, the more you will benefit from financial planning in the future. It’s not about the size of your income as much as it is about how well you manage and plan your finances.  

Consistency is key. Stay committed to your financial plan, adjust it as needed, and you will be on a solid path to achieving your goals. 

Conclusion

We’ve covered budgeting basics to credit management, savings, strategic investing, and mastering your debt. While your financial journey is just beginning, getting started is the most important part. Seeking professional advice can also provide a solid backup to everything you’ve learned, but get started early - yesterday was the best day to start, but today is the next best. 

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FAQ

Why is having a good credit score important?

A good credit score is important as it impacts your ability to obtain loans and credit cards, influencing the interest rates you are offered. Maintaining a strong credit score can also affect your housing options, insurance rates, and, in some cases, employment opportunities.

How much should I be saving each month?

Aim to save at least 20% of your income each month, adjusting based on your personal financial goals and obligations. These savings can help build an emergency fund, contribute to retirement, and work towards other financial objectives.

How do I create a budget?

To create a budget, list all sources of income, track your monthly expenses, and set clear financial goals. Allocate specific amounts of your income towards different spending categories, and review your budget regularly to make necessary adjustments and stay on track.

mattlevy
Written by Matthew Levy

Matthew is a freelance financial copywriter with 14+ years in financial services. He holds a Bachelor of Science degree in Economics with business and finance options and is a CFA Charterholder. He is from Vancouver, Canada, but writes from all over the world.