Unfortunately, most high schools and colleges do not require students to study personal finance. Many young adults are unaware of how to handle their money, seek for credit, and obtain or stay out of debt due to a lack of fundamental financial education. States are beginning to address this shortcoming; by 2020, 21 states will require high school students to take a personal finance course, and 25 will require them to take an economics lesson.
That should help at least a portion of the future generation, but for those who have graduated from high school, here are eight of the most crucial things to know about money. These financial advice is intended to help you live your best financial life and take advantage of the fact that the younger you are, the more time you have to increase your savings and investments.
1. Learn Self-Control
If you were fortunate enough to have such a teacher as a youngster, your parents may have taught you how to do this. Otherwise, bear in mind that the sooner you learn to restrain your drive for immediate gratification, the easier it will be in the future to manage your personal money.
It is preferable to wait until you have accumulated enough money to make the purchase rather than purchasing anything on credit the moment you desire it since it is more convenient. Is it really worth paying interest on a pair of pants or a box of cereal that you will never wear? A debit card is exactly as convenient as a credit card since it deducts payments from your checking account rather than accruing interest on your balance over time.
2. Save for emergencies
A healthy financial strategy must include an emergency savings account. But, exactly, what is an emergency? A true emergency is something over which you have little control and little option, such as a serious illness or the loss of a job. An unexpected expense, such as a car repair or travel to see relatives, is not an emergency, but rather a different type of expense that should be saved for.
Saving enough money to cover three to six months’ worth of expenses is a good rule of thumb. If you have a propensity of tapping into your savings when you shouldn’t, segregate the funds so they won’t be exhausted when you need them.
3. Control Your Financial Future
Others will discover ways to mismanage your money if you don’t learn to handle it yourself. Some of these people, such as dishonest, commission-based financial advisers, may have bad intentions. Others, like Grandma Betty, who truly wants you to own a house even if you can only afford one by taking on a dangerous adjustable-rate mortgage, may be well-intentioned but have no idea what they’re doing.
Rather than relying on others for financial guidance, take responsibility and read a few basic personal finance books. Don’t allow anyone catch you off guard once you’ve gained knowledge—whether it’s a significant other who is steadily draining your bank account or buddies who want you to go out and squander gobs of money with them every weekend.
4. Spend less, save more
Spending less is a good place to start when it comes to saving. Most people can find ways to save costs, whether it’s an expensive hair salon, daily premium coffee, or brand-new items at retail pricing.
Don’t put your money in your pocket, wallet, or bank account when you cut back on spending since you’ll just spend it on something else. Make a debt payment or move the money to a savings account where it will be out of reach that day.
5. Start Saving for Retirement
You must plan for your retirement far in advance, just as your parents undoubtedly sent you off to kindergarten with high aspirations of preparing you for success in a world that seemed aeons away. Compound interest works in such a way that the sooner you start saving, the less principle you’ll need to invest to reach the amount you’ll need to retire.
Why should you start saving for retirement in your twenties? Here’s an example from Investopedia: You invest $100 every month in the market, averaging a positive return of 1% per month or 12% per year, compounded monthly over 40 years. Your friend, who is the same age as you, doesn’t start saving until he’s 30 years old and invests $1,000 each month for ten years, averaging 1% per month or 12% per year compounded monthly. Your acquaintance will have saved roughly $230,000 after ten years. Your retirement fund will be somewhat more than $1.17 million.
Increasing your income and cutting your spending are the two main tactics for increasing savings and investments.
These suggestions can help you grow savings, decrease debt, raise income, and invest properly whether you’re a young adult ready to start saving for retirement, a 50-something ready to pay off your mortgage, or a senior citizen living on a fixed income.