3 Tips to Start Getting Your Finances in Order Early

Good news: more young adults are improving their financial health. According to CNN’s report on millennial money habits, nearly a quarter of people aged 24 - 41 have more than $100,000 in savings, up from 16% in 2018. The younger generation is more concerned about their finances: tracking expenses, regularly checking account balances, and paying credit card bills in full each month — as 75% pursue a comfortable retirement.

Those in younger generations like Gen Z have plenty to learn from the people who came before them. It’s easy to do well with finance if you start right away, with a best-foot-forward-approach. When you enter your 20s, you’re probably earning an entry-level salary and paying bills without your family’s help. It’s the right time to start managing your own money. Instead of relying on others for advice, young adults should learn the basics of personal finance. Here are three tips to get your started:

Come up with a good plan for saving

When you start earning your own money, it can be challenging to keep a handle on your expenses. Budgeting is the key to ensure your expenses don’t exceed your income, and allow you to make small, manageable adjustments to how you spend money. There’s no one way to budget correctly, because you need to do this according to your needs. As a rule of thumb, deposit one-third of your income into your savings account.

We already mentioned in our post called Stop Struggling With Saving Money! a quick hack for this: automatic savings. This is a fixed amount of funds you automatically deposit into a savings account at specific intervals. This guarantees that money flows into your savings account regularly. If you’re new to budgeting, you can transfer a set amount of money at a specific time and date every month. If you’re more advanced, you can even program your checking account to transfer funds automatically into savings.

Get a head start on investing

Investments are essential for growing wealth. Savings are good, but that’s money just sitting there and losing value by inflation. You need to invest cash so it has the potential to grow. Maryville University’s write-up on investment tips recommends starting to invest at a young age so you can accrue compound interest, take more risks, and give yourself room to make mistakes as you learn about the process. Even if you’re still in college, you can explore manageable and low-risk investment accounts like index funds, IRA accounts, and certificates of deposit.

Before investing in anything, make sure you understand what you’re doing. Research brokerages who will make investments on your behalf. Not only will they track your investments’ value, but they’ll also provide you with advice. You can also opt to have an account manager handle your portfolio, in case you’re not ready to make decisions independently.

Learn to anticipate expenses

We saw in the past two years how quickly things can change. Around 46% of Gen Z and 43% of millennials have less emergency savings than they did before the pandemic. Insights from Northwestern University suggest that younger workers have burned through whatever savings they had, as they experienced unemployment. It doesn’t even have to be a global health crisis; your laptop could suddenly break down or you could find yourself needing emergency dental care. It’s good to anticipate and prepare for these expenses using a sinking fund. A sinking fund is like a savings account, except the money you’re stashing is meant to be spent on a specific goal like car repairs, vet bills, or even a vacation. You set aside some money in one or multiple categories, so you can pay off larger purchases at a later date.

You can also identify previous “unexpected” expenses to estimate how much you’ll need to save in your sinking fund. List down common seasonal expenditures such as taxes and gifts, then check past bank or credit statements for other irregular expenses over the past year. Tally up the amount, then divide by the number of paychecks you receive yearly. Set aside this money in a separate account so you’ll be ready when you need it.

There's no better time than right now to manage your finances. As young as you may be, it's never too early to educate yourself and work on your financial goals.

Exclusively written for budgetqueenblog.com by Jocelyn Cooper