If there’s one class I wish I could’ve taken in college it’d be a semester-long dive into financial dexterity. Unfortunately, very few classes like this exist in college, let alone at the dinner table. There’s a profound lack of financial literacy, which has become a hit to point out among the millennial crowd. Twenty somethings carry an average debt of $45,000, and fewer than half of states require high school students to take an economics class. These are simple facts, but they illustrate an urgency we have yet to tackle. It is in this urgency that I’ve accumulated some basic financial tips for young adults in hopes to nudge a few of them in the right direction:
Financial Tips for Young Adults
Start saving early. Begin when you leave the campus and embark on your first full-time job. Young adults should take full advantage of their companies’ 401(k), assuming the employer provides a contribution match. Setting aside a percentage of your paycheck in a pretax IRA, for example, will teach you to not only live within your means, but save you exponentially more as you begin to earn more and become aggressive with your set-asides. This is one of the biggest reasons why teaching your kids about money is important. When it comes to building a nest egg, it’s not the people who earn the most, it’s the people who save the best.
Master self-control. The epic battle of thoughts will pass whether you decide to act on your thoughts or not. It’s the same principle as eating, smoking or seeing a beautiful new gizmo just beyond your price range. Discipline is one of the greatest factors in determining whether someone will be financially successful or not. Famed motivational speaker and author Brian Tracy says the “primary reason that most adults have financial problems is not because of low earnings. The reason is lack of self-discipline and the inability to delay gratification.” It seems the parental advent of the piggy bank was primarily created to condition children into delaying instant gratification, to think “save” instead of “spend on candy.”
Don’t let your expenses exceed your income. If it pains you to spend $15 on a parking toll but doesn’t to spend $15 going out to lunch, you are human. But bank accounts aren’t, and they are immune to what constitutes a “worth it” buy. Budgeting is another skill parents sometimes fail to teach their children, and it’s repeatedly drilled by every personal finance author in the known universe. Knowing where your money goes—$30 a week at the coffee stand, $50 a week at the burrito cart—will give you a keener grasp on your finances, as well as saving. Cutting your spending when you can manage is the same as receiving a raise at work. Whether you choose Mint or Quicken, a visual database illustrating your expenses will—at the very least—provide a more tangible concept of your spending.
Understand how credit works. The ramifications of missing a payment, opening unnecessary credit accounts, and falling into debt don’t exactly hit the young spender until it’s too late. It’s your financial GPA, and it dictates whether you qualify for an auto loan, a home mortgage, an apartment, and even a job. Did you know that unpaid parking tickets can negatively impact your credit score? Did you know your score could drop if you sign up and use store cards for the initial discounts? To maintain a healthy FICO score, make sure you know the terms and conditions before you commit, shop for low interest rates, and make your payments on time.
Shop around. Quotes vary in nearly every industry. Whether it’s insurance premiums, vehicle maintenance, or cell phone service, it pays to take some time to research. Communication can play a big part: talk to your parents or a friend who has a handle on this stuff and pick their brain. You could end up paying hundreds less each month and potentially thousands less each year. Yes, ignorance may be bliss, but it’s also the bane of a healthy financial standing.