Are you having trouble organizing your personal finances? You’re not alone, 88% of young adults find financial planning hard. One of the main reasons young adults struggle with money is that they never learned how to manage it.
But, as a young adult, you will have to make financial decisions, and being responsible for those decisions will positively influence other aspects of your life. Luckily, we have you covered. Here are five tips for creating a personal finance plan to help you build a solid financial future.
Self-Control Is the Key
One of the most significant challenges of young adults is learning how to be mindful of money spending and wisely manage their personal finances. Although a credit card gives you the freedom to purchase whatever you want whenever you want, think about whether it’s a wise step. If you can’t pay your dues at the end of the month, you might still be paying for the items you’ve purchased 10 years from now.
Make a habit of using your credit card only in rare cases of emergencies and, when you do, make sure to pay your dues. This step is essential for building a solid credit history which you might need later in life. Meanwhile, consider using a debit card as a substitute whenever you can as it keeps you from accumulating interests.
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Track Your Spending
The most important thing is to ensure that your expenses aren’t exceeding your income. To do that, you need to track your spending. At the end of each month, take a moment to loFinancial Tips for Young Adultsok at how you’ve spent your money. It might be helpful to write your monthly expenditures on a piece of paper to see where your money is going.
When reflecting on your spending you should be honest with yourself and realistically compare your expenses versus your allowances. This will get you a better idea of what you can afford with the money you earn. Also, you’ll be able to see which costs are burdening your budget. For example, if you see that the costs of your daily coffee run add up in a given month, you can make small changes in your everyday spending and save quite a lot of money over time.
Embrace the 50/30/20 Rule
The 50/30/20 rule is an easy budgeting method used by money-conscious individuals who want to know how much they put towards the savings and living costs each month. The technique involves separating your after-tax income into three categories: essentials, wants, and savings.
You should put half of your income towards essentials, including food, bills, housing, and transportation. Then, allocate 30% of your income towards non-essential expenses like dining out and clothes. Finally, dedicate the last 20% to your savings. Consistently putting aside 20% of your income each month will help you save money faster than you think.
Put Money Aside for a Rainy Day
Life is unpredictable, so you never know when an emergency might occur. Whether it’s job loss, house repairs, or illness, unexpected expenditures can mess with your finances. That’s why you need to have an emergency savings fund. This practice will give you peace of mind knowing that, whatever happens, you’ll be able to get back on your feet.
Treat the emergency fund as a non-negotiable expenditure, and you’ll quickly see your savings adding up. Ideally, you should have at least six months’ worth of living expenses in your fund to help you weather any temporary financial hardships. That being said, keep in mind that you need to keep your emergency fund liquid so that you can use it when you need it.
Learn How To Deal With Debt
Your borrowing capacity tends to be limited in young adulthood, so it’s crucial that you don’t put yourself into debt for buying unnecessary stuff. So, it’s crucial to balance your debts by considering your long-term goals.
It’s crucial to make the difference between necessary and unnecessary debts. When it comes to essential debts, you’re borrowing money with a real purpose, usually to obtain something that will be beneficial in the long run. For example, you might need to take an education loan, which is justifiable. But on the other hand, taking a loan to buy the latest version of a smartphone is a debt that could be avoided.
Money plays an important role in our lives, and as a young adult, you should take control of your finances. Take time to adopt the best practices for budgeting and saving so you can build a solid foundation for healthy financial independence.