10 Financial Skills Every Young Adult Should Know
The financial skills you learn during your young adult years can significantly affect your decisions when you grow older. It is important that you understand the basic concepts and develop healthy habits early in life to efficiently manage your finances in the years to come.
As a young adult, here are some vital skills you need to be aware of.
Setting financial goals
Setting financial goals will give you a reason and the drive to stay motivated. If you have no clear plan of what you are saving up for, you will most likely spend your hard-earned money on something that has no substantial value to you.
Carefully define your short and long-term goals. Are you saving up for retirement or planning to start a family? Do you have plans of being an entrepreneur, or are you eyeing a house in the market?
Make sure that your financial goals are realistic, feasible, specific, and quantifiable. You should also set a timeline for these goals to ensure that you stay the course.
Creating a plan for your future
Once you have established your financial goals, you can now create a plan to achieve them. Envision how you want your future to look like and craft a financial plan that coincides with your life milestones. To make it easier, start with a three-year plan, then work on further goals. Be honest with yourself and take the time when developing your financial plan.
Order your goals by priority so that you know which ones you need to tackle first. It may be overwhelming to plan everything out at this point in your life, but doing so can prevent you from wasting your time and resources on irrelevant and unnecessary endeavors.
Budgeting your money
One of the basic skills you need to work on as a young adult is budgeting. As you grow older, your budgeting scope will become more complicated, so you must have a strong foundation early on.
Your budget tells you how much money is coming in and out of your accounts, and where they are going. Creating a budget can help you determine if you have a healthy cash flow and if you are spending more than you should. An effective budget can also help you make better financial choices and veer you away from unhealthy transactions.
You can either use a budgeting application, track your finances in a spreadsheet, or write it down with a pen and paper.
Saving up for emergencies
As a young adult, you may still tend to rely on your parents for your emergency purchases. However, this habit can only turn you into a dependent individual who can only survive by heavily relying on someone else.
You must build up an emergency fund to cover unexpected expenses. The last thing you want to do is max out your credit cards whenever you run out of money. Strive to have at least three to six months’ worth of savings. Ideally, you should have a separate bank account to store your emergency fund so that you won’t be tempted to withdraw anytime.
Safeguarding your savings
While your emergency fund should be easily accessible, your savings must be kept in difficult-to-access bank accounts. Do your research to find out what savings account suits your needs and lifestyle. Consider opening a Certificate of Deposit (CD) as they offer competitive rates and are hard to access. Moreover, if you tend to overlook your savings, you can set up an automatic savings account so that they will be on autopilot.
Separating your needs and wants
If you are still living at home, it is natural for you to depend on your parents for your basic needs. However, once you start living independently, you need to separate your needs from your wants.
Remember that you have no one to rely on but yourself, so you should learn the difference between the two to prevent yourself from being caught up in a poor financial position.
Building your credit history
One of the secrets to having an excellent credit history is by starting early. Your credit score will significantly influence your financial standing later in life, so you need to make sure that you keep it in excellent standing.
Pay your credit card bills on time, avoid maxing them out and do not sign up for unnecessary loans. In addition, you should make it a point to check your credit report regularly and dispute any discrepancies. By doing this, you are not only safeguarding your credit, but you are also preventing identity theft.
Investing in life insurance should be included in your financial plan. You must protect yourself and ensure that your future family is well-protected if something unfortunate happens to you. The younger you are, the more affordable your life insurance policy will be.
Make sure to check all of your options and weigh their pros and cons.
Understanding credit card and interest rates
If used correctly, credit cards can be excellent tools to build up your credit. Many adults make it a habit to use their credit cards on their everyday purchases and allow them to accrue interest charges.
As early as now, you need to learn how to use your credit cards wisely. Make it a point to pay off your balance every month and take advantage of rebates and reward points. Only use your credit card on items you can quickly pay off and do not spend more than you earn.
Remember that your credit card should not serve as your emergency fund, so use it responsibly.
If you want to be financially healthy, you must continuously find ways to educate yourself. Aside from learning the basics of financing, try to explore other financial terms and alternative earning methods. You can start learning how to invest, how to become an entrepreneur, and the different ways to earn additional income. Widening your financial knowledge at an early age can give you more leverage in the future.
Navigating the financial world can be challenging, especially for young adults. With the right mindset and attitude, and smart planning, you can quickly achieve your financial goals and gain financial independence.
About the Author
Bilal Javeed began writing as a professional on his personal blog and then discovered his true calling writing about technology, news and gadgets in general. He has been a technical writer, author, and blogger since 2010. An industry watcher who stays on top of the latest features, he is passionate about juicy tech news and everything related to gadgets.