Becoming financially literate is one of the most valuable life skills you can develop as a young adult. Making smart financial decisions early on will not only set you up for the future but will also give you greater control over your finances today. Here are three essential things every young adult should know about money.
1. Budgeting Is Key
One of the first steps towards financial independence is learning how to budget. A budget is simply a plan for how you’ll spend your money each month. It helps ensure that you’re living within your means and saving for the future. The 50/30/20 rule is a good starting point: allocate 50% of your income to essentials (like rent, utilities, and food), 30% to discretionary spending (like entertainment and dining out), and 20% to savings or debt repayments. Budgeting also helps you avoid unnecessary debt, making it easier to build a solid financial foundation.
2. Start Saving Early
Saving money might not seem urgent when you’re young, but the earlier you start, the better. Ideally, aim to save at least three to six months’ worth of living expenses in an emergency fund. This money should be kept in an easily accessible savings account and only used for genuine emergencies, such as unexpected car repairs or medical bills. Beyond an emergency fund, consider setting up a savings account or investment account to start growing your money over the long term.
3. The Importance of Credit
Your credit score plays a significant role in your financial life. It affects everything from whether you’ll be approved for a loan or mortgage to the interest rates you’ll pay. A good credit score opens up more financial opportunities, while a poor credit score can limit your options. To build and maintain a good credit score, always pay your bills on time, keep your credit card balances low, and avoid applying for multiple loans or credit cards in a short space of time.
By mastering these three basic financial principles, you can set yourself up for a lifetime of financial success. Budgeting, saving, and managing credit responsibly will give you the foundation you need to achieve your financial goals and live with greater peace of mind.
To speak to a financial advisor please get in touch. We offer a no obligation first call.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Approved by The Openwork Partnership 17th September 2024
