Growing up comes with all kinds of challenges, from figuring out what you want to do in life to simply keeping your laundry sorted. But one thing that often gets overlooked? Managing your money. It’s a life skill that can make or break your future.
It is not as terrifying as it sounds. Once you get the hang of it, managing your finances can even feel empowering. Think of it as giving yourself options, freedom, and a way to stress way less about those unexpected expenses. This isn’t about perfection. It’s about getting the basics down, like how to budget, save, invest, and handle credit.
Small steps now can set you up for big wins later. And guess what? You don’t need to be a math genius or make a ton of money to start. In this post, we’ll break down the financial essentials that young people should prepare for as they grow up.
Budgeting Basics
Money can feel like a mystery, but budgeting is like giving your cash a roadmap. It’s just a plan for how you’ll spend, save, and maybe treat yourself a bit. Without a budget, it’s easy to wonder where your money even went at the end of the month. Spoiler alert: it’s usually coffee and takeout.
So, how do you start? It’s way easier than you think.
1) Know what’s coming in.
Write down all your income. Paychecks, side hustle cash, even that $20 your grandma sent you. Every dollar counts.
2) List what’s going out.
Now, jot down your expenses. Be real with yourself. Yes, Netflix and bubble tea need to make the list.
3) Divide and conquer.
Set limits for your spending categories. Housing, food, fun stuff, basically everything.
If writing it down feels overwhelming, apps like Mint or YNAB. They track your spending, help you set goals, and even give you friendly nudges if you’re going overboard.
Saving Strategies
Saving money might not sound thrilling, but it’s one of the smartest moves you can make. Seriously, future you will thank you for this. Saving isn’t just for buying boring “adult” things; it’s about creating a safety net and giving yourself the chance to say “yes” to opportunities later.
First up is the emergency fund. It’s like your financial life jacket. Car breakdown? Medical bill? No problem, you’ve got money set aside for emergencies. Experts recommend having 3-6 months of expenses saved up.
After setting up an emergency fund, start saving for fun stuff, too. Want to go on that dream vacation? Do you want to buy your first home? Putting money away for these goals is just as important as saving for emergencies. Set specific targets and break them into smaller chunks to make them manageable.
For instance, if you want to buy your first home, there are a lot of costs to consider. Down payment, closing costs, real estate lawyer fees, moving expenses, the list goes on. Start by figuring out how much you need to save for each of these categories and set a timeline for yourself.
Another saving strategy is automating your savings. Set up automatic transfers from your checking account to your savings account, or use an app that rounds up your purchases and saves the spare change. This way, you won’t even have to think about saving; it will happen automatically!
Understanding Credit
Credit can feel like one of those adulting mysteries, but it’s super important to figure out. At its core, credit is borrowed money you agree to pay back later, usually with interest.
The way you manage credit can have a significant impact on your financial life, from renting an apartment to getting a car loan or even a mortgage. The key to this is your credit score. It’s like a financial trust score that shows how reliable you are. A good score can mean lower interest rates and better deals, while a bad one can make life a lot more expensive.
Here is how you can build and maintain a good credit score:
- Pay your bills on time: Late payments can negatively impact your credit score, so make sure to pay all your bills on time.
- Keep balances low: Try not to use more than 30% of your available credit. High utilization can make you seem financially stretched and unreliable.
- Monitor your credit report: Regularly check your credit report for errors or inaccuracies that could be hurting your score.
- Build a history: If you are just starting out with credit, consider getting a secured credit card or becoming an authorized user on someone else’s card to begin building a positive credit history.
It’s also important to understand the different types of credit available. Revolving credit, like credit cards, allows you to borrow money up to a certain limit and pay it back in amounts of your choosing. Installment credit, like student loans or car loans, requires fixed payments over a set period of time.
One thing to keep in mind is that having too many credit accounts open can actually hurt your score. It’s important to only have as much credit as you need and can responsibly manage.
Investments
You’ve probably heard of investments before, but do you know what they are and how they work? Investments involve putting money into something with the expectation of earning a profit or gaining some other form of return. This can include stocks, bonds, real estate, and various types of funds.
The big idea? You’re letting your cash work for you instead of sitting idle. And the best part is, the earlier you start, the bigger the potential payoff, thanks to the magic of compound interest (basically, earning returns on your returns).
There are lots of ways to invest, but here are the basics:
- Stocks: You’re buying a small piece of a company. If the company does well, your investment’s value grows. Stocks can be risky but can also bring high rewards.
- Bonds: Think of bonds as loans you give to a company or government. They’re lower risk but tend to grow more slowly.
- Mutual Funds: These are bundles of stocks and bonds. They’re managed by professionals, making them a friendlier option for new investors.
- Real Estate: Investing in property can offer steady income through rents or potential gains if the property value increases over time. While it often requires a significant initial investment, real estate is considered a tangible asset that can diversify your portfolio.
- Index Funds and ETFs: These funds track a specific market index, such as the S&P 500. They’re a popular, low-cost option for growing wealth over the long term with less hands-on management.
No matter the type of investment, it’s important to assess your financial goals, risk tolerance, and time horizon. It is recommended to consult with a financial advisor or do thorough research before making any investment decisions.
Getting a grip on your finances might not seem like the most thrilling part of growing up, but it’s one of the smartest. Remember, your financial future is in your hands. So start investing in your future today!
Some links will earn me a commission.
The post Financial Essentials Young People Should Prepare for as They Grow Up first appeared on YoungMoneyFinance.
