GenZers spend most of their money on experiences rather than planning for their future or paying bills. They do this partly to share their experiences on social media.
Adulthood brings independence and increased responsibilities. However, what you do with your finances at this age determines your future financial health. Establishing a solid financial foundation early can pave the way for a secure and prosperous future.
I’m sharing this article not only because I am a mom – but also because I’m a bestselling entrepreneur with about 2 million books sold globally.
I love to help people to live their best lives – so I pulled together this article with financial planning tips for young adults.
Below are helpful financial planning tips for young adults.
Financial knowledge is the key to financial planning. It’s almost impossible to succeed in something you don’t know. But this doesn’t mean you need a degree in finance or economics.
It means understanding how to manage your money for your current and future needs. Financial literacy is like investing in your future—a decision with long-term benefits that pays off big.
Financial literacy equips you with the knowledge and skills to make informed business decisions. You’ll understand the basics of budgeting, debt management, saving strategies, and investing. This empowers you to take control of your money and achieve your financial goals.
Financial literacy is continuous, so don’t beat yourself up for trying to learn everything simultaneously. Learn, process, and implement the lesson. Luckily, there are many resources to help with this.
You must invest. As a young adult, you have the advantage of time on your side, allowing you to take more risks for potentially higher returns. Take time to learn about different investment opportunities and strategies.
You can gain insights from books, blogs, podcasts, and YouTube channels focused on personal finance. For a more personalized approach, consider working with a professional advisor like Team Hewins, who can guide you through the complexities of investing and help you create a strategy tailored to your goals. Expert advice can be a valuable asset, whether you’re just getting started or fine-tuning your plan.
To manage risks, spread your investments across various asset classes, such as real estate, bonds, cryptocurrency, stocks, and commodities. Work with financial professionals like a family office or investment broker to help you on the journey.
Learn how to manage debt responsibly and avoid financial pitfalls. A plan alleviates financial anxiety because it makes you feel more secure and less stressed about money. It also helps you start saving and investing early, which grows your wealth over time.
Now that you have the much-needed financial knowledge, it’s time to know where your money is spent. Have you ever heard someone say they have an income but don’t know where their money ends? Don’t be like them. That is the first step to financial instability.
So, what should you do? First, you need to establish your net worth. This is the value of your assets minus your liabilities. This information will give you an accurate picture of your financial health.
Next, record your total income and expenses. Are you spending more than you would like to? Tracking how you spend your money allows you to identify areas to cut back, freeing up cash for savings and debt repayment.
Saving is crucial to building wealth and security. As a young adult with minimal responsibilities, this is the right time to save. First, you must create an emergency fund separate from your investment savings account. This money is meant to cover unexpected expenses like medical bills or help you if you lose your job. Try to save at least three months’ living expenses, but add more if possible.
Next, start saving for retirement. Although retirement is several decades away, starting early allows you to invest more and benefit from compound interest. According to the National Bank of Canada, you should have 2.1 times your yearly income saved for retirement by 40.
The biggest mistake in your life is spending more than you can afford. It might seem worth it when you start paying for the Ferrari you bought on loan, the Dior you wear, or the underwater hotel on a Caribbean island. And God forbid you lose your job. It would cripple you financially for years.
As a young adult, don’t fall under peer pressure and lose track of your financial goals. Creating a budget is the cornerstone of financial planning. The 50/30/20 rule offers a simple framework. Allocate 50% of your income to essential needs like rent, groceries, and utilities.
Thirty percent can be put towards wants, like that weekend getaway or the new outfit you’ve been eyeing. Channel the remaining 20% towards savings and debt repayment. Prioritizing needs ensures your basic living expenses are covered while allocating funds for wants allows you to enjoy life without guilt.
As a young adult thinking about financial planning, you are already miles ahead of your peers. By adopting these tips and staying consistent, you’ll be well on your way to building a secure and prosperous future.
Remember, the key to financial success lies in making informed decisions, staying disciplined, and continually educating yourself about personal finance. Start planning today, and your future self will thank you.
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