5 Important Money Management Tips for Young Adults

Good financial management is one of the most vital skills that every young adult needs to have. Unfortunately, such a skill is generally not taught in most school curriculums. Often, financial literacy is associated instead with either the virtue of self-taught resourcefulness or the idea that the skill of being “good with money” is the responsibility of parents to inculcate into their children’s minds from the start.

Regardless of these schools of thought, it’s certainly important to know the basics of managing your money to have a sense of control over your life. From rent payments and groceries to utility expenses and streaming subscriptions, nearly all aspects of your daily life are tied to money. That said, you should start working towards financial stability while you’re still young and have plenty of options to make and save money.

Basic money management doesn’t have to involve rigorous accounting and comprehensive knowledge of economics. It only entails strategic thinking and self-assessment to help you get a grasp of your spending limits and future plans. Practicing good financial management early on will not just benefit you, but also your progeny, who will inherit your family’s generational wealth.

Are you a young adult looking to improve the way you manage your money? Here are some tips we’ve put together to help you out.

Make Self-Control a Habit

It’s always tempting to spend lavishly every payday, but doing so will only likely lead to regrets rather than fulfillment, especially if you’re still building your life savings. The first step toward implementing a money management strategy is to recognize your limits and have the fortitude to work with them.

You can practice control over your finances by opting to pay with cash instead of credit for most of your purchases. Paying with cash helps you avoid the debt spiral that comes with credit-induced overspending and the resulting unmanageable interest rates. Alternatively, you should develop the practice of using your credit card only to pay for necessities that you would pay with cash otherwise. This way you can accrue loyalty points that you can use to pay for other necessities. Practicing self-control over your money allows you to keep your credit score high, avoid debt, and have more peace of mind.

Track Your Spending

Self-awareness is an important quality to have if you want to manage your money wisely. Make it a habit to monitor your spending to get an idea of how much money you spend daily, monthly, and yearly. If you’re trying to save money, visualizing your spending can help you figure out which expenses you can do without.

Nowadays, there are a lot of banking tools and apps that can help you manage savings and expenses. If you don’t have one yet, open an account with a bank that uses a modern digital banking platform equipped with features for tracking expenses. Such platforms may also offer personalized banking products for investments and savings that encourage you to save rather than spend mindlessly.

Prepare a Solid Budget Plan

Learning how to budget doesn’t have to involve hard-to-understand formulas and calculations. Your budget plan can be as simple as a table that categorizes your expenses, savings, and splurges. This will help you calculate how much you need to spend for a week or month and make adjustments around your income.

When creating a budget plan, make sure you understand the difference between essential and non-essential spending. Essential expenses are your fixed, recurring payments such as rent, utilities, insurance, and loans. These should be your priorities. Non-essential spending, on the other hand, is discretionary and includes expenses you can accommodate if there’s still room in your budget. These may include travel expenses, subscriptions to streaming services, and gym memberships. These are the expenses you can cut from your budget if you intend to repay debts or make large, lifetime investments such as a new home.

However, you should also note that your budget needs to be realistic. When planning a budget strategy, you should have a clear idea of your natural spending habits and how much you need to sustain yourself. For example, drastically cutting spending on food or leaving no budget for any form of leisure can lead to overindulgence the next payday. Make sure to allocate healthy, workable amounts for both your essential and discretionary expenses.

Build a ‘Rainy Day’ Fund

Emergency funds provide a solid enough financial bedrock when things get tough. Uncontrollable events such as accidents, illnesses, retrenchment at work, and even inflation could potentially erode your funds, so it would be good to have a pool of funds as your always-ready emergency line. Consider opening a high-interest savings account where you can periodically allocate a part of your income for the rainy days.

Protect Your Financial Future

Another way to secure your finances is by getting insurance. There are a lot of insurance products in the market for a wide range of needs, from renter’s insurance to general life insurance. Signing up for an insurance plan will help you ensure the availability of enough resources when faced with unforeseeable circumstances.

Another way to ensure a steady income stream down the line is by saving up for retirement. If your place of employment does not offer retirement benefits, you can always choose to set up your own. You may think that setting up a retirement fund is for people who have already established their lives, but saving up early for retirement can bring more yields during your twilight years.

Invest in Your Financial Freedom No matter how much you earn, managing your funds wisely is the real key to preventing financial ruin in the near future and beyond. Every young adult should have the capacity to become financially independent, and you can do so with the right preparation and attitude. By setting yourself up for financial freedom this early, you’ll get to live your life without worrying too much about constantly tightening your purse strings.