5 Personal Finance Basics All Young Adults Need to Learn
Did you know that the average American saves less than 5% of their disposable income? Many adults struggle with their personal finances, which can have a massive impact on their lives both now and in the future.
Money management is not taught in schools, which means that many young people enter adulthood at a serious disadvantage. When you know how to manage your money, you can build an enjoyable lifestyle and plan for a comfortable retirement without having to earn a fortune.
Interested? Read on to discover how to manage your money by mastering five personal finance basics.
1. Live Within Your Means
The simplest—yet most important—part of financial management is living within your means.
It might seem obvious, but it is amazing how many people spend more money than they earn each month. This can make it very difficult to build wealth and improve your circumstances.
This is why it is crucial to control your spending (more on this below) and always ask yourself whether or not you really need to spend the money.
Following this, the best way to control your spending is with a household budget. Essentially, this involves working out your total household income and then dividing this into different spending categories.
These days, you can use budgeting apps to create a household budget that works for you. The best budgeting apps can help you to divide your income into key areas of spending as well as find ways to make savings on your regular outgoings.
3. Emergency Fund
Research shows that two-thirds of Americans would struggle to come up with $1,000 in an emergency. One of the most important personal finance tips is to have an emergency fund, which would allow you to cover expenses in an emergency such as an unexpected household repair or needing a new car.
Generally, it is recommended that you have between three and six months’ worth of expenses in an emergency fund. If you lost your job, you would have a safety net with enough time to find a new job. This can also provide peace of mind that is hard to put a price on.
4. Future Planning
One of the fundamental money management principles is future planning. It is hard to think ahead to the future, especially when life is so expensive right now, but you must take steps now to plan for a better future.
When it comes to future planning, the earlier that you start, the better as you can benefit from compound interest (a vital principle to understand). You will want to make sure that you are contributing as much as you can to your pension, putting money into savings, and looking into wealth-building strategies like investing.
It is also important to understand debt and how good and bad debt can be. There are many times in life when you might require a loan, such as an unexpected expense, buying a car, or starting a business.
You must always take out a loan from a trusted lender in these situations. Check out fastloandirect.com as an example. Additionally, you need to always understand the terms and conditions and how the loan will be repaid.
Get On Top of Your Personal Finances
These are the five key areas to focus on to get on top of your finances. Many young adults struggle with money management, but when you master the basics, you can build a better life for yourself now and in the future.
Check out our other personal finance articles to learn more!