Financial Tips for Young Adults

Unfortunately, personal finance is not a required subject in most high schools or colleges. Due to a lack of basic financial education, many young people do not know how to manage their money, apply for credit, and whether or not to pay off debt.

Let's take a look at the eight most important things to understand about money. These financial tips are designed to help you live your best financial life and take advantage of the fact that the younger you are, the more time you have to grow your savings and investments.

1. Learn self-control

If you're lucky, your parents taught you this skill when you were a child. Otherwise, keep in mind that the sooner you learn the fine art of delaying gratification, the sooner you'll find it easy to keep your personal finances in order. While you can easily buy an item on credit the minute you want it, it's best to wait until you've actually saved up the money to buy. Do you really want to pay interest on a pair of jeans or a box of cereal? A debit card is both convenient and takes money from your checking account rather than racking up interest.

If you're used to putting all your purchases on credit cards despite not being able to pay your bill in full at the end of the month, you can still pay for those items 10 years from now. Credit cards are convenient and pay on time, which helps you get a good credit score. And some offer enticing rewards. But - except in rare emergencies - always pay the balance in full when the bill arrives. Also, don't carry more cards with you than you can keep track of. This financial advice is critical to building a healthy credit history.

Control your financial future

2. Control your financial future

If you don't learn how to manage your money, other people will find ways to manage it for you. Instead of relying on the advice of others, take charge and read a few basic personal finance books. Once you're armed with knowledge, don't let anyone take you by surprise—whether it's a significant other who's slowly draining your bank account, or friends who want you to go out and blow a ton of money with them every weekend.

Know where your money is going

3. Know where your money is going

After reading a few books on personal finance, you will understand how important it is to make sure that your expenses do not exceed your income. The best way to do this is to create a budget. Once you see the cost of your morning coffee go up over the course of a month, you'll realize that small, manageable changes to your day-to-day expenses can have just as big an impact on your financial situation as a pay raise.

Plus, cutting your recurring monthly expenses as low as possible can save you a lot of money over time. Even if you can rent out an apartment with lots of amenities now, opting for something simpler may allow you to purchase an apartment or house sooner than otherwise.

Understanding how money works is the first step to making your money work for you

4. Create an Emergency Fund

One of the most frequently repeated personal finance mantras is “pay yourself first”. No matter how much you owe in student loans or on a credit card, and no matter how low your salary may seem, it's smart to find some amount - any amount - of money in your budget to set aside each month in an emergency fund.

Having savings to use for emergencies can keep you out of financial trouble and help you sleep better at night. Also, if you get into the habit of saving money and treating it like a non-negotiable monthly expense, pretty soon you'll have more than just emergency money saved up: you'll have retirement money, vacation money, or even house payment money.

Start saving for retirement

5. Start saving for retirement

Just as your parents probably sent you to kindergarten with high hopes of preparing you for success in a world that seemed far away long ago, you need to plan ahead for your retirement. Because of how compound interest works, the sooner you start saving, the less principal you will have to put up to get the amount you need for retirement.

Why start saving for retirement at age 20? Here's an example from Investopedia: You start investing in the market with $100 per month, which yields an average positive return of 1% per month or 12% per year, compounded monthly over 40 years. Your friend who is the same age does not start investing until 30 years later and invests $1,000 per month for 10 years, also averaging 1% per month or 12% per year, added up monthly. In 10 years, your friend will have saved about $230,000. Your retirement account will be just over $1.17 million.

Company-sponsored retirement plans are a particularly great choice because you can put in pre-tax dollars, and companies will often contribute a portion of your contribution, which is like getting free money. Any employer-sponsored plan you happen to be offered is one step closer to financial health.

If you don't have access to a company data plan, don't despair. There are a number of options for those who are self-employed to create retirement plans. Others can open their own IRA, which allows you to withdraw a certain amount of money from your savings account each month and deposit directly into your IRA. Even if it's just a small amount, it will eventually turn into something useful.

Take control of taxes

6. Take control of taxes

It is important to understand how income tax works even before you receive your first paycheck. When a company offers you a starting salary, you need to know how to calculate whether that salary will provide enough after-tax money to meet your financial obligations and hopefully your goals.

Luckily, there are plenty of online calculators out there that have done all the work of determining your own payroll taxes. These calculators will show you your gross salary, how much goes into taxes, and how much you have left, also known as "net" or "take-home" wages.

Similarly, if you are planning to leave one job for another in search of a pay raise, you need to understand how your marginal tax rate will affect your raise. For example, a pay raise from $35,000 a year to $41,000 a year won't give you an extra $6,000 a year ($500 a month) - it'll only give you an extra $4,227 (about $352 a month). The amount will vary depending on your state of residence and potential tax rate, so take this into account if you are considering moving.

Finally, take the time to learn how to pay your own taxes. If you do not have a difficult financial situation, this is not so difficult to do, and you will not have the expense of paying a tax specialist. Tax software makes this job a lot easier than when your parents first started out and ensures you can file online.

TTake care of your health

7. Take care of your health

If paying monthly health insurance premiums seems impossible, what will you do if you have to go to the emergency room, where a single visit for a minor injury, like a broken bone, can cost thousands of dollars? If you are uninsured, don't wait another day to apply for health insurance. It's easier than you think to get into a car accident or trip and fall down the stairs.

If you work, your employer may offer health insurance, including high deductible health plans that save you premiums and make you eligible for a Health Savings Account (HSA). If you need to purchase insurance on your own, look into the plans offered by the Affordable Care Act health insurance market - there are federal plans or your state may have its own plan. Look up quotes from different insurance companies to find the lowest rates and see if you qualify for a subsidy based on your income. If you have health concerns, be aware that a more expensive plan may be cost-effective for you; explore options.

If you are under 26, it may be best for you to stay on your parents' health insurance if they have it, an option that was allowed after the Affordable Care Act was passed in 2010. If you succeed, offer to pay them back for the additional cost of keeping you in their plan.

It is also worth taking daily steps to maintain your health, such as eating fruits and vegetables, maintaining a healthy weight, exercising, not smoking, avoiding excessive drinking, and acting defensively. All of this will help you save on medical bills in the future.

8. Protect your wealth

To make sure all your hard-earned money doesn't disappear, you need to take steps to protect it. Here are a few steps to consider, even if you can't afford them all right now.

If you rent, get renter's insurance to protect the contents of your home from events such as burglary or fire. Read the policy carefully to see what is covered and what is not.

Disability income insurance protects your most important asset - your ability to earn income, providing you with a stable income if you ever lose your job for an extended period of time due to illness or injury.

If you need help managing your money, find a paid financial planner who will provide unbiased advice that is in your best interest, not a commission-based financial advisor who makes money when you sign up for investments backed by their company. The latter has potentially divided loyalties (to his company's profits and to you), while the former has no incentive to misdirect you.

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 all your money earns interest. There are many funds you can invest your savings in, such as high interest savings accounts, money market funds, CDs, stocks, bonds, and mutual funds. The first three are relatively risk-free, while the other three carry more opportunities for financial failure, but also more opportunities for monetary rewards. Learning to invest is an important skill for saving and eventually building wealth.

Essence

Remember that you don't need any degree or special education to become an expert in managing your finances. If you use these eight financial rules and financial tips in your life, you can achieve the same personal well-being as someone with a hard-won MBA in finance.