The best time to start budgeting and planning for your financial future is, well, yesterday. Young adults can be especially lax when it comes to planning and budgeting. Though it seems like they have long to go before they need to have a set plan, this isn’t the case.
According to a recent analysis, by the time Gen Z and millennials retire, they’ll need around $120,000 to $150,000 per year to live comfortably — making $3 million the average amount they need to retire.
The cost of living has risen sharply over the past few years, with the price of everything from houses, rent, groceries, gas, and other daily essentials going up. By the time younger generations retire, things will be even more expensive.
By creating a solid financial plan earlier rather than later, you’re setting yourself up for success.
Financial planning can be complicated and confusing, but it doesn’t have to be! Payactiv is in the business of helping people like you advance towards financial freedom and explore new possibilities as to how you earn, spend, and save money.
The road to financial freedom and stability is different for everyone. However, here are some tried and true tips for building financial stability in your early years of adulthood:
Credit scores are important, yet many young people don’t know exactly what they are and why they matter. A credit score is a number, usually between 300 and 850, that represents the state of your creditworthiness and how responsibly you’ve handled your finances in the past. If you have a high credit score, you’ll be more likely to qualify for lower rates on loans and credit cards. In some cases, prospective employers will take candidates’ credit scores into account when considering offering them a job. Similarly, landlords will likely want to see it.
To build a good credit score (a number that’s above 700), make sure you pay your bills on time, every time, and try to use as little of your available credit as possible. Also, make a point of checking your credit report from the major credit bureaus periodically and address any errors.
The only way to reach your goals is to set them. Without establishing specific big and small goals, it’s much harder to reach them. Small goals allow you to work in the short-term for something that should help you achieve a larger goal.
Be realistic with yourself, but don’t be afraid to aim high! Financial planning is all about making goals a reality.
The best way to see all your finances in one place is by creating a financial calendar. Here you should write down when all your bills are due and for how much. Insurance, phone bills, utilities, mortgage or rent payments, any subscriptions, or automatic bills, as well as many others, should all be added to your calendar.
If you need quick cash, a payday loan can seem like a tempting offer, and it’s pretty easy to do. You just walk into a lender’s office, fill out some paperwork, and leave with fast cash.
However, payday loans come with ultra-high interest rates. Read more about why you should always try to avoid payday loans.
Earned wage access allows you to receive money for hours you’ve worked before your boss has sent out paychecks. This is a great option for those who are struggling to check or in need of quick emergency cash.
The best part? There are no loans required. Forget about those insane interest rates you can’t pay back. By using earned wage access, you get the boost you may need without damaging your finances too much.
If you don’t even realize you’re spending hundreds of dollars a month on takeout, how are you supposed to regulate that spending? Take time to evaluate your current financial situation, including what you tend to spend your money on.
Take the average of some common purchase categories like food, entertainment, and shopping from the last three months and see if you can par down and allocate those funds somewhere more useful.
If you don’t have an emergency fund already, you need one. Unexpected expenses can be detrimental when we’re on a tight budget or even just trying to stick to a basic one. Alleviate the stress that comes with a flat tire, layoff, unexpected medical bills, or home repairs by investing some of your income each month.
Experts say you should have at least 3 to 6 months of living expenses saved in your emergency fund. If you don’t have much to put in right now, do what you can. Even a few dollars here and there can add up!
Getting a credit card can be a scary step for first-time users because of all the horror stories we’ve heard about credit card debt. But if you don’t have one yet, look into one with the best interest rate and perks that fit your lifestyle.
Credit cards are imperative for building your credit so you can apply for houses, cars, and other big purchases or expenses later in life. However, you want to make sure that you’re using them responsibly. Always pay more than the minimum balance due; if not, that’s a good way to get trapped in growing credit card debt.
Don’t think you have it in you to use a credit card at the moment? Switch over to an all-cash payment method. This way, you know exactly where and when you’re spending all your money. It allows you to keep track of expenses and how much money is trading hands every day. It can even be more cost-effective than credit cards in the long run.
You’re young, there’s probably a good chance you’re not thinking about retirement yet, but you should! Retirement will creep up on you, just like those wrinkles! Start saving now to have plenty in your back pocket for your golden years.
A good way to begin is to familiarize yourself with the concept of compound interest (often referred to as “interest on interest.”) Once you understand how saving hard and saving early will put you on track to retire comfortably, you’ll be incentivized to start.
The worst thing you can do for your financial health is to be lax about keeping solid records.
Now, we’re not saying to hoard all your old receipts, but keeping a file folder or binder with important financial documents together can be really helpful when analyzing statements, loan information, or account numbers.
You’ve heard it once, and you’ll hear it a hundred times over again, BUDGET. Budgeting your money helps you divide up your income based on categories like retirement savings, emergency savings, food, housing, school, loans, debt, and everything else. By distinctly telling yourself through your budget what percent of your income you’ll be spending, it’s much harder to spend on other things.
Your budget, in combination with your financial calendar, should be your best friend when it comes to planning your financial future. Calculate fixed expenses like rent or mortgage payments, phone bills, and utilities first. Then, create fixed payments for things you can make variable payments on, like loans and credit cards.
Treating your variable expenses like fixed payments will help eliminate frivolous spending.
As your life changes and your career develops, you’ll want to revisit your financial plan. If you’re now making more money to allocate into your savings, up the percentage you put in every month. You should always be aiming to grow financially. Don’t get comfortable with one financial plan for too long. Adjusting it periodically will help you reach those short-term and long-term goals you set.
In addition, you should review your financial plan when there is a significant change to your personal circumstances, for example, the birth of a child or taking on more debt via a mortgage. These life events may require changes such as additional life and disability coverage, changes to your medical insurance, or a review of your will.
It’s vital to understand how the tax system works before you accept and start your first full-time job. The salary your employer pays you is subject to monthly tax payments to the IRS, so you need to be sure your take-home pay (or net pay) is sufficient to cover your monthly financial needs and obligations, such as rent, food, utilities, transport, childcare, savings, and spending money. Also, bear in mind that the higher your salary, the higher the tax rate, so take this into consideration before you accept a higher-paying job than the one you currently have
The good news is that there are plenty of online calculators available that can quickly help you determine what your after-tax salary will be. Also, rather than pay a tax professional to prepare your tax returns for you, explore online tax filing software as an alternative.
For many people, insurance is something of a “grudge purchase.” But when disaster strikes in the form of theft or the loss, damage, or destruction of personal items or property, you’ll be glad you have it.
Top of our list of insurance must-haves are:
Always read every insurance policy carefully so you understand what’s covered and what isn’t.
Following on from our previous point, it also makes sound financial sense to look after your physical and mental health.
Making a habit of eating healthily, getting enough sleep, exercising, not consuming alcohol excessively, and maintaining a healthy weight will not only contribute to your overall well-being now but also reduce the likelihood of you incurring medical bills later in life.
An obvious way to build financial security and make more money is to increase your salary. There are several ways to do this: leave your employer and take a higher-paying job elsewhere or negotiate a salary increase with your current employer. If you’re hunting for a new job offering incredible perks, check out Payactiv Job boards in the Payactiv App to find a job offering Earned Wage Access.
Even if you get a raise of $1 per hour, it can make a big difference. That’s why measuring and tracking your earnings with care can add thousands of dollars to your pocket throughout your career.
If you feel it’s time to get paid what you deserve but don’t want to switch jobs, read Payactiv’s “Tips For Getting a Raise” blog post. Asking for more money from your boss can feel challenging, but it might be easier than you think.
Another way to boost your income is to take on a second job. Going this route can actually be a lot of fun! Many people successfully turn a hobby into a small-scale money-making business. While being your own boss can mean putting in extra time and effort, investing in your side hustles is 100% worth it.
Read our blog post, “How to Get Your Side Hustle to Pay Your Bills,” for more insights and inspiration.
Managing one’s personal finances can feel overwhelming, so it’s a good idea to have a professional in your corner. Many young people turn to independent financial planners to help them manage their money wisely and save for the future.
Fee-only planners are a popular choice. That’s because, unlike commission-based advisors, who earn a commission if you sign up with their company’s investment plans, they can give you unbiased advice.
Your financial future is determined by how well you follow these financial planning tips. By being diligent about saving and keeping an eye on your spending, you’re sure to get to a place where you can make big money moves. And remember, always keep a clear goal in sight.
Need more tips and information to get you through your early years of financial planning and save money? Check out our blog for more tips like these!
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