Unfortunately, personal finance isn’t a required subject in college or high school, so a lot of young adults are fairly clueless about how to manage their new-found, hard-earned income for the first time. Personal finance is something that all young adults should be educated in, and to get you started, we’ve taken a look at five important things to understand about managing your money if you want to live a comfortable and financially stable life:
Learn Self Control
Even though you can effortlessly purchase something on credit the second you want it, it’s much better to wait until you’ve actually saved up the money to make the purchase. If you make a habit of putting all of your purchases on your credit cards, regardless of your ability to pay your bill at the end of the month, you may still be paying for those items for years. If you enjoy using your credit cards for their convenience or their rewards, make sure to always fully pay your balance once the bill arrives.
Create a Budget
No matter how much or how little you make, you need to create a budget for yourself. A budget helps you determine whether you can afford to go out for dinner with friends, or if you should go home and have a bowl of soup. Most importantly, a budget provides a concrete, organized, and easily understood breakdown of how much money you have coming in and how much money is going out. A budget is an invaluable tool to help you prioritize your spending, and to help you keep your finances on track.
Pay Yourself First
If there’s personal finance fact that should be told to every young adult, it’s that you should pay yourself first. No matter how much you owe in student debt or how low your salary may seem, it’s always a good idea to find some amount of money in your budget to save a little bit for yourself every month. If you get into the habit of saving money and treating it as a non-negotiable “expense”, you’ll quickly find yourself with a nice sum of money saved. If you want to be financially independent by the time you’re 30 years old, pay yourself first.
Start Saving for Retirement Now
This may not be top on your priority list of things to put your money towards, but it definitely should be. Because of the way compound interest works, the sooner you start saving for retirement, the less principal you’ll need to invest to end up with enough money to retire. The sooner you start building your nest egg, the sooner you’ll be able to call working an “option” rather than a “necessity”.