There’s a lot of things they don’t teach in school. A lot of important things that you have to fumble your way through, especially during the earlier part of your adulthood. When it comes to finances, there are even fewer things being taught to children, not even young adults. That’s what this quick guide is for: to show you what financial lessons even young adults should know.
Monitor Your Expenses and Follow a Budget
Learn how to monitor your own expenses and adhere to a budget right now. Train yourself to stay within your financial limits, and your older self will thank you. Far too often, when we don’t monitor how much we have, and we spend too much than we can actually afford. Start the habit of monitoring your expenses by using expense tracking apps. This allows you to gauge whether you’re still within budget or not. When you’re still up-and-coming, integrating this habit into your everyday life can help you develop good financial skills.
Manage Your Debt Wisely
Here’s the thing: debt is not bad. However, handling your debt badly is definitely bad. It’s difficult to go through life without using the credit system (which is admittedly, very helpful), but should you have to use it, be wise with your usage. Make sure to adhere to your payment schedule to not incur any late fees as it can negatively affect your credit score. Better yet, don’t borrow more money than you can handle.
Even if you think the interest rate is low, when you calculate the accumulated time-to-interest ratio, it can still be a significant amount. When it comes to major financial commitments such as a loan from a trusted mortgage lender or a car loan, make sure you’ve prepared for it long term. You don’t want two large financial commitments happening so close to each other that you’ll be scampering for a way to pay them.
Learn How the Credit Score System Works
When you’re young, you don’t have to worry much about credit scores or finances. But as you enter adulthood, it becomes increasingly important. Your credit score can dictate whether you’ll be able to take out a loan or make a large purchase, so it’s to your benefit to make it work.
Learn how the credit system works- for one, the score is taken from your credit report. Start with the basics, like knowing that your credit report is handled by the biggest names in the industry. These credit reporting companies update your credit report every year and are necessary if you’re taking out a loan or a credit card. If your credit score is high, it will be easier for you to get credit, if it is lower, then you might be met with difficult rates- or be downright rejected. Working on improving your credit score is easy, and we already gave the tip: learn to manage your debt wisely.
Hunt for Discounts and Bargains
If you look well enough, you’ll find discounts and bargains everywhere. Especially for young adults or young professionals who don’t earn as much, being frugal and taking advantage of discounts can help make ends meet. Check your local restaurants for their discounted meals- often, you’ll find them in small businesses that offer set meals for a cheap price.
Even computer and electronic equipment go for sale frequently, you just need to be aware of when they’re happening. If you’re still in university, there might be some special discounts to students that you can take advantage of. If you need a subscription to academic software or services, your university might offer free accounts for its students. All it takes is for you to look around and hunt for them.
Start Your Emergency Fund Right Now
If it’s your first job in your life, you don’t have enough money to consider it an “emergency fund”, so that’s what you need to work on. Do your best to resist temptation and don’t splurge your first salary. You can get something you like, but make sure you set aside some for later. It doesn’t even have to be a large amount of cash- you can start slowly during your first few months of work. Having an emergency fund will prove very helpful should you find yourself in an emergency of sorts. You never want to be cashless in a moment where you need money, so this is one way to prevent that from happening.
How you manage your finances in your early 20s can dictate how comfortable your later years will be. Make sure to take advantage of your youth and begin good financial decisions early on in your life.