Sadly, personal finance has never been a topic that you learn either in high school or even in college, for that matter. Consequently, this leaves young adults clueless about how they ought to manage their finances as they move on in life. “Where should I spend my money?”, “How much should I spend?” etc., are some of the questions that continuously ponder in their minds.
Last week, I went to the Mind Busting Escape Rooms to play a game by myself. And I was put in a group with two girls who were college classmates. We hit it off exceptionally well thanks to the game, and spontaneously enough, we went to grab a bite together. When we were discussing how to split the bill, among the many jokes and banters, a sad reality popped out. “I don’t know why restaurants don’t put tax-included prices on the menu. I am 22, and I don’t know what the hell is a service tax. I mean, I don’t know any tax for that matter”, joked Ava.
But when I seriously told them that I could give them the basic concepts of financial literacy in a nutshell, both of them visibly perked up in their seats. It is important to talk to experienced people to learn about finances. That is how I learned it, and hopefully, Ava and her friend got some help from me too.
If you, too, are looking for a place to start educating yourself about finances, here are 10 tips from a seasoned adult:
#1 Always keep a detailed track of your expenditures
One of the essential things for anyone to do is, of course, to maintain a proper and detailed record of their expenditures. Almost every one out of ten people fails or does not care to maintain a proper track of their daily, weekly, or monthly expenditures.
In doing so, they often end up spending more money than they can afford to! These are mostly the people whom you will always find to be burdened by their debts.
Thus, to keep such problems of recklessly spending more money than you can afford, make it a habit to keep a detailed record of all your expenditures. You can use just a simple notepad and pen to jot down each one of your expenditures, no matter how little money one might include.
You can also use the different kinds of expenditure tracking apps that you can find on app stores of both android and iOS platforms for your purpose. Using an excel sheet to maintain your cash inflow and outflow can also be helpful!
#2 Exercise self-control in handling your finances
The sooner you inculcate the habit of exercising self-control in handling your finances, the better it is for you. Recklessly spending your money on literally anything and everything is an extremely harmful practice of regulating your finances. Instead, wait until you can save up the required sum of money to make a certain purchase, and then you can either use cash or your debit card to buy the product.
Unlike your credit card, a debit card ‘debits’ or deducts the money from your desired account right away. In doing so, you do not have to pay any kind of additional fees. However, when you use your credit card to make purchases, you need to pay off the balance to your bank in full every month. Thus, as you can understand, in using your credit card, you are made to pay a high-interest loan to your bank.
When people, especially young adults, get into the reckless habit of making every single purchase using their credit card, they summon their doom. It thereby requires them to not only pay interest for each of their purchases but does also require them to pay for those items in the next ten years. Thus, make sure to never get into the dangerous habit of using your credit card for your purchases. Instead, make a purchase only when your bank balance can afford it!
#3 Always have a monthly/weekly budget
Once you know how much money you are spending every day or every month, you can draft a monthly or weekly budget for your regular expenditures. Figure out how much of your money you can afford to spend, and based on it, draft your budget. Make sure that your budget is realistic enough for you to stick to it instead of making you fall into debt.
You can divide your budget adequately between your different necessities, like food, medicines, commutation, etc., and entertainment like going out to a restaurant or the movies. After you have prepared your weekly or monthly budget, make sure that instead of forgetting all about it, you make an effort to stick to it.
#4 Open a separate savings account
Before we go into anything else, remember this savings account is an account different from your regular personal account. This account is for you to save up some of your money every month so that you can fall back on it later on in your old age.
Once you have drafted your monthly or weekly budget, chalking out how much money you can save up every month is going to be an easy task. Often people get so reckless in spending their money that they save up almost none of their income, leading to financial problems in the future.
While you are still in your 20s, you probably would not have to worry much about paying your bills or mortgage on time or even about having the responsibility of children. Thus, it makes your 20s the best period to start saving up your money as much as you can for the future. Ideally, you can aim to save up at least your income at this stage. Start by saving up a small amount of your money, and then you can gradually increase the amount of money that you save up.
#5 Stay clear of bad advice
Learning to manage your finances is essential for you, or else people might find ways to mismanage your finances. For instance, unscrupulous financial planners with evil intentions can easily make you go bankrupt with their advice if you are not well aware of how to manage your finances!
Even some of your relatives, though not with bad intentions, can often end up giving you advice that proves to be fatal for your purpose. Thus, you need to educate yourself regarding how you can manage your finances instead of relying on the advice given by random and unqualified people.
You can check out a few basic books on personal finances or even look up some articles or videos on Google to educate yourself. Make sure that it is always you who remains in charge of the reins of your finances.
#6 Keep an emergency fund for yourself
Maintaining some of your money to use in case of an emergency is also an essentially vital practice. No matter how much money you have to pay every month to clear your student loan or how tight your budget seems on a certain month, you must keep aside some of your money. Remain resolute in yourself that you would not even touch this money if it is not an emergency.
By getting into the habit of saving up some of your money in this way every month, you would naturally start thinking of it as an added monthly expense. There might even be a time when you will find that you have saved up more money than you will need in your emergency savings alone! In such a case, you might even think it fit to shift this excess money in your emergency savings to your savings account.
#7 Indulge in investments
If and when you have some free time, either during the weekends or even during the weekdays, you can read about mutual funds and investments. Become aware of how these financial instruments work. Once you feel you are confident about it, you can start a SIP with a small sum of money and invest it in mutual funds.
Cryptocurrency has soon become a hot topic these days. So, if you are considering investing your money, you can even research cryptocurrency and start investing a very small amount of your money in it. However, when you start to invest your money in this way, remember that the key to investments is to buy and hold on to your stocks/shares. Once you start to notice how your money considerably grows over time, it will make you feel more confident in yourself.
#8 Educate yourself on taxes
Even before you collect your first paycheck, you need to gather knowledge about how exactly income tax works. Once a company offers you their starting salary, you need to calculate whether that money would be enough to live on after you pay your taxes from it. With smart financial planning, you can even squeeze out enough money from your salary to make way for your savings too!
Nowadays, there are plenty of online calculators that you can fall back on to calculate how much of your salary is left after taxes are deducted from it. These calculators work by charting your total earnings, how much money goes into paying taxes, and finally, your net pay (the amount of money left).
Always squeeze out some time from your hectic daily schedule to calculate your taxes. Considering you do not have a highly complicated financial situation going on, doing your taxes is not a tough job. The use of the latest apps and software available today will make your work considerably easier than you thought!
#9 Pay attention to your health
Be it now or even in your future, your health is what matters the most. Neglecting your health is never going to do you any good. Especially if you fall sick, just because you were pretty reckless in your 20s or your 30s, then you would have to end up spending all your savings on your health alone!
Your tirelessly accounted savings would then come of no use if you had to spend them all on your health. Health care services are gradually growing to become immensely expensive as days pass by and would surely become almost unimaginable by the time you grow old.
By taking care of your health now, you can avoid having to use up all your savings on health care services. You can even think of getting health insurance so that you do not have to pay as much, even when you do get injured or fall sick.
#10 Say goodbye to all your bad habits
Bad habits do not just merely include smoking or drinking, but also habits like buying products on an impulse or being indecisive. Smoking and drinking are habits that not only ruin your health but are also expensive habits. By becoming addicted to such bad habits, people often end up spending the last penny they have to relish that one moment of their addictive habits. Furthermore, these habits also endanger your health, and you might even be diagnosed later on with throat cancer or other fatal diseases like this.
Bad habits like impulsive buying can easily make a hole in your pocket before long. When you start recklessly spending your money on buying things on an impulse, you undeniably end up endangering your financial stability and thus fall into debt.
The time when we are in our 20s, it feels like we are at the top of the world and nothing in the world can surpass us. It is then that people start spending money in the most reckless ways possible. So, instead of doing the same and endangering your own life, follow these 10 financial tips and achieve financial freedom and stability to live your dreams!
Provided By Tax Software Company, Sovos
