You know what they say — old habits die hard. So if you have bad financial habits when you’re young, they’re going to be tough to break when you’re older. When you’re trying to buy a house or get a loan, you shouldn’t also be learning financial literacy from scratch. The time to learn is when you’re young.
Many adults who are financially savvy started developing good habits at a young age. However, when you’re young, it can be hard to figure out what those good habits are. Here are six financial tips to get you started on the road to financial security.
Getting a credit card might seem like bad advice for a young person who’s trying to build good financial habits. But getting that card can actually be a good thing. Your creditworthiness shapes a lot of your financial options as you enter adulthood. Qualifying for a loan, buying a car, and even renting require good credit. A credit builder card can help you build that credit to make big purchases later.
Of course, getting your hands on a credit card also means you need to develop good credit card habits. You shouldn’t use it to spend money you don’t have. You should focus on demonstrating that you can pay off the balance you amass. Pay in full and ontime. If you can do this, you’re off to a great start financially.
As shocking as it may seem, many Americans don’t save any money. According to Northwestern Mutual, the reason is that 49% of adults don’t know how much they should spend versus save. They don’t have a clear roadmap or plan for saving. If you set savings goals when you’re young, designing a savings plan won’t seem as difficult.
If you’re a precocious child, you can start a college savings fund and watch it grow. However, many kids don’t have access to the financial resources to do that. That doesn’t mean you’re out of luck if you’re a young adult. You can simply start out by growing an emergency fund.
The unexpected happens all the time. Whether you need to make a trip to urgent care, or your car breaks down, you need to prepare. Set a savings goal that realistically fits your budget. You can round up the change from each purchase, or set aside two dollars a day. There are plenty of methods to save, so pick what’s best for you.
Speaking of saving, a budget is one of the most effective tools in your toolbox. Without a budget, you’re liable to spend little thought on where your money is going each month. A budget is a great tool for teaching people about money management. No matter your age, you can benefit from learning how to budget.
There are plenty of free budgeting apps out there to help you get started. If you’re a self-starter, you can also build one on your own. Plus, creating your own budget will help you get a better understanding of your finances.
If you’re making your own, you’ll just need to track some budgeting basics: monthly income, fixed expenses, and variable expenses. Once you know how much money is coming in and out every month, adjust from there. Decide where to cut back spending, and how much you want to put away.
It’s important that you start earning money at a young age. Not just for the sake of having some income, but because it teaches you important lessons about finances.
For one, if a child deposits money into a savings account, they’ll learn how their money can grow. For another, they’ll be able to make purchases from their earnings. This will show them exactly how many hours of work it takes to buy the guitar they’ve always wanted.
As kids watch their money grow, it motivates them to continue working hard and pushes them to achieve financial goals. It’s good for them to have some sort of visible, tangible way of understanding how much money they have. This helps them stay motivated and better understand finances.
Learning about the power of compounding interest will set you up to be a financially successful adult. Saving is important, but knowing how to grow your money can help you build wealth. Make it a priority to learn about investing at a young age, so that you reap the benefits sooner.
You might make mistakes at first when investing. There can be a big learning curve. So a retirement account can be a good place to start. Your employer’s retirement plan will typically illustrate how you’re earning compound interest on your investments. From there, you can put together your own diversified portfolio.
It’s important to consider all options when making a purchase. Whether a purchase is big or small, those with good financial habits are always searching for the best deal. For example, compare weekly ads before you go grocery shopping, or wait for a holiday sale to buy your couch.
Make sure to compare the cost of big ticket items, like college. It’ll be good for your wallet, and it’s a good finance exercise.
Look at all the expenses: tuition, room and board, books, and even transportation costs. From there, you can make an informed decision by comparing different options. If you don’t plan to attend college, you can do the same thing with other big expenditures, like cars.
Managing your finances can be stressful, but the earlier you start developing good habits, the better off you’ll be. These tips can help you get started, and make dealing with finances a little bit easier.
Remember that financial literacy is about more than numbers, it means having more freedom and a higher quality of life. As you build these good habits, you can share them with your children. Then you’ll be ensuring your financial security, and theirs.