Most young adults find it difficult to escape credit card debt, unnecessary student loans, and many other financial problems, due to a lack of financial planning. According to a 2019 report from Pew Research Center, only 24 percent of American young adults can be considered financially independent by 22. Clear financial plans allow young adults to avoid debt and save for their futures.
If you are looking to adopt a financial plan for yourself and live a debt-free life as a young adult, then this guide is just what you need. Read on to find helpful financial advice, including financial planning tips for young adults, alongside books and other resources that can secure you a healthy financial life.
Top 5 Financial Planning Tips for Young Adults
A young adult is usually defined as a person between the ages of 18 and 25, according to the Massachusetts Institute of Technology’s (MIT) Young Adult Development Project. Many young adults dream of financial freedom, but, to be financially free, you need a definite financial plan and strategy to follow through with.
According to Schwab’s 2019 Modern Wealth Index Survey, young adults in the US are more likely than other generations to spend lavishly in order to keep up with friends and the pressures of social media. In the survey, 49 percent of Millenials and 44 percent of Generation Z admitted that they were influenced by social media to spend money on experiences.
However, as a young adult, you can still enjoy your new sense of financial freedom while paying your bills on time. The financial planning tips below can help you find your financial footing as a young person.
1. Learn self-discipline and moderation
The act of self-discipline is key when it comes to your finances. There is a natural urge to spend in order to feel good or impress your friends, but you need to keep this in check. Any time you want to spend money, ask yourself the questions below.
- Do I need this item?
- Is the item necessary, important, or compulsory?
- What other things can my money fetch me?
Decide what you really need and what you don’t. Stop impulse purchases by waiting for a few days before purchasing an item. If you decide that the item is worth buying, search around for the best price and go for discount rates when shopping.
2. Create a budget
A budget is a list of your income and your expenses, designed to help you cut unnecessary spending. Budgeting solves many financial issues by helping you differentiate your wants from your needs. Within your budget, you should also have planned out figures for savings and investment, along with plans for your emergency funds.
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A budget shows you the state of your finances in clear terms. If you are spending more money than you are earning, then you need to trim down your expenses and save up more. Note what takes a larger percentage of your income and see if it can be reduced.
3. Save and invest
Saving is an essential part of every human life. In order to invest, you must first have savings. Once you are able to comfortably use your savings, try investing in stocks and shares. A stock represents partial ownership of the earnings and assets of a company. You can purchase stocks in companies once you have saved a substantial amount of money.
Saving and investing will help you prepare for the rainy days and give you much-anticipated financial freedom, faster than you have imagined. Another way to save is to consider working from home, if your job permits, because this will reduce your transportation costs. If your job doesn’t permit remote work, consider a work-from-home career.
4. Consider working with a finance expert
If you can afford to, you should consider receiving financial coaching. Working with a finance expert or mentor can provide you with a detailed plan for your finances. These experts have the right knowledge and can tell you what works best for you. This provides an avenue to gain financial guidance when you hit financial setbacks.
5. Create an emergency fund stash
The importance of having emergency money cannot be overemphasized. Prepare for unexpected costs, like bills for treatment, accidents, or car repairs. Have a percentage of your income go toward unexpected expenses. This will keep you from touching your budget or savings.
One of the ways to create an emergency fund stash is to have a side career, which is a great way to level up your financial game. You may even find better career opportunities in the process.
5 Financial Mistakes to Avoid for a Young Adult
Whatever decisions you make as a young adult set the foundation for your financial journey. If you make good choices from the start, you will enjoy your future, and vice-versa. To avoid costly mistakes that’ll rip you of a lifetime of enjoyment, we’ve compiled some financial mistakes to avoid as a young adult.
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1. Using your credit cards irresponsibly
Using your credit cards irresponsibly can set you up for a lifetime of debt clearance and ultimately give you a dreaded red notice. You must be guided by a budget when using your credit card, to avoid unexpected expenses.
Deny yourself of some immediate luxuries for a period of time and don’t splurge with your credit card without a plan for clearing your debt by the end of the month. Commit not to carry your debt over to a new month, and pay off debt as it is due to keep your credit rating solid.
2. Saving and not investing
Saving and not investing is like having a seed and not planting it while expecting it to yield fruits. While having savings is good, you need to have a plan for investing. Don’t wait until you are 40 or married before you think of investment opportunities. Being a young adult doesn’t mean you have all the time in the world to save. Investments bring in a ripple effect of what you have saved.
3. Not having an emergency fund
A big part of being an adult is having to cope with unplanned and unexpected bills. The good thing is that having an emergency fund can help you settle those bills. However, not having an emergency fund will cause you to dip your hands into your savings or investments, reducing your income. Have a certain percentage of your income that can be used to cover emergency expenditures.
4. Failing to set financial goals
A popular adage says: “When you fail to plan, you plan to fail”. This goes for our finances, as well. Not setting a financial goal, or not planning for your finances when you should, can cause you to be irresponsible about your money. Setting goals makes you responsible and, with that, you are likely to stay on track and live better.
5. Misusing your student loan
Many young adults are college students, and college students have access to loans to aid their career goals. The result of this, however, is that many young adults have to pay off loans for the rest of their lives which can end in financial stagnation. If you are a student, borrow only what you need and be sure that what you are borrowing is essential for your financial success.
How to Make a Budget for a Young Adult
A young adult in their early 20s makes an average of about $2,500 per month, according to the Bureau of Labor Statistics (BLS). Expenses and savings can be taken from this income and plugged into a monthly budget.
The typical rule of budgeting is the 50-30-20 rule. This says that 50 percent of your income goes to your needs, which are most important, and 30 percent goes to your wants. Here, you can break down the 30 percent into emergency funds and the rest of your wants, while the remaining 20 percent goes to your savings and, subsequently, your investments.
Sample Budget for a Young Adult
|Expense or Income||Amount|
|Total Income||+ $2,500|
|Debt Payments||– $400|
|Eating Out||– $150|
|Emergency Fund||– $300|
Financial Planning Resources for Young Adults
To set financial goals, you have to be knowledgeable about everything concerning finance, which includes savings, investment, budgeting, and everyday expenses. These financial planning resources can help you gain the right knowledge and prepare you for a better life ahead.
Financial Classes for Young Adults
- Financial Planning for Young Adults on Coursera. This class, hosted by Coursera, provides an introduction to financial planning concepts tailored to young adults.
- OppU. OppU is the financial education arm of OppLoans. This class is structured into four modules: Spending, Budgeting and Saving, Credit, and Debts and Loans. There are other materials that OppU publishes to make you financially knowledgeable as well.
- Personal Finance for Young Adults on Udemy. This Udemy class is for young adults who want to build and grow their wealth, who want to take charge of their finances and master it as well.
- Personal Finance Planning by edX. This course teaches you how to manage your finances and make better financial decisions. It also teaches the time value of money and the basics of stock markets and investments.
- Personal and Family Financial Planning on Coursera. This course teaches how to manage your finances, both while in school and outside of school. It also teaches prudent financial habits.
Financial Planning Books for Young Adults
- I Will Teach You To Be Rich by Ramit Sethi. This book teaches young adults the rule of thumb for navigating their finances. Sethi points out that many young people fail to build wealth because they are overwhelmed when it comes to making a decision. Sethi teaches the topic of financial planning as an alternative to this issue in his book.
- What You Should Have Learned About Money, But Never Did by Sophia Bera. This book presents readers with an introduction to financial planning concepts. It teaches how to sort out basic personal finance areas, like setting financial goals, paying debt, starting an emergency fund, and saving for retirement. It also teaches subjects like how to start a side hustle and having multiple financial goals.
- Rich Dad, Poor Dad For Teens by Robert T. Kiyosaki. Renowned finance enthusiast, Robert T. Kiyosaki, talks about tackling the basis of financial literacy, finding your own learning style, getting business opportunities, and goal setting. The book is written in a funny, witty, and simplified manner.
- The Early Investor by Michael Zisa. This book is perfect for any young adult looking into financial advice on investing. It teaches the basics of investing, as well as a step-by-step guide to frugal investing, alternative investments, mutual funds, and exchange-traded funds (ETFs). Zisa wrote the book in a simplified manner aimed at young adults.
- Clever Girl Finance by Bola Sukunbi: This book talks about how friends and families can influence your spending patterns. Sukunbi goes into real-life stories of women gaining ground in their finances. The book is motivating, empowering, and educational for young adult women. It talks about budgeting and investing as well as mindset and personal growth.
Financial Planning Software for Young Adults
- Personal Capital. This financial software links all your financial accounts in one place and also provides a net worth tracker. The software helps you with budgeting and cash flow tools to help you track your spending. Personal Capital keeps a tracker for your financial goals, spending, and savings, and this software can also help you choose your investments and wealth management services.
- Quicken. This software offers to create a budget for you, manage your bills, prioritize your purchases, manage your savings goals, and track your debt. It has both a free and paid package.
- Intuit Mint. Mint is focused on basic budgeting and money management. It helps you track all of your accounts in one place, aiding you with budgeting and tracking your investments.
- Wealth Trace. Wealth Trace helps you plan for retirement and college savings and also gives insight as to how you can reduce your liability. It is available for both individuals and financial experts.
- eMoney Advisor. eMoney Advisor is invaluable for any financial professional. Its plans give access to basic financial planning, advanced financial planning, and advanced analytics. Beyond this, it also offers marketing services to help your brand or company. This program can be accessed through both free and paid versions.
Meet Your Young Adult Financial Goals in 2022
Young adulthood is the best time to set the foundation of your financial life by setting financial goals, planning well, budgeting, and taking control of your spending habits. The tips and financial resources provided in this article can help you lead a successful financial life. You will be able to set measurable, achievable, and realistic financial goals, learn good financial habits for your future career and life.
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Financial Planning for Young Adults FAQ
Budgeting is the most important part of financial planning because it helps you understand your financial situation and cut unnecessary expenses.
Financial planning helps you spend wisely, keeps you from running into debt, and helps you save and invest for the future.
A budget is a list of all your income and expenses, designed to let you control your personal finances and understand how your income could best be utilized.
Financial planning lets your money work for you, as it helps you monitor your income source and grow it as time goes by. You’ll also find money to utilize in times of need, letting you avoid loans and credit card debt.
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