Step-by-Step Financial Planning for Young Adults

Posted by MoneySavvy on Jun 26th, 2010 | no comments home title

Young adulthood is for many the most exciting time of life. Between finishing school or starting full-time work and moving away from parents and into an independent lifestyle, this period of life is full of change, opportunity…and challenges.

We live in a fast-paced world with strong consumerism trends that can ruin young people unaccustomed to managing their finances. Here are some step-by-step financial planning tips for young adults.

Discipline Yourself to Use Cash

Your mailbox may be filling up with credit card companies wanting to sign you on as a customer, but you’ll need to tread very carefully and use some restraint. Credit cards will make it easy to buy things when you have insufficient cash. But that isn’t the mindset to have when purchasing with a credit card in your pocket.

Think about it – unless you’re disciplined and will pay off you credit card balance in full at the end of the month, you could be paying for that $10 frozen pizza you put on credit for years to come. The interest rate credit cards charge can be exorbitant, causing items purchased to grow to an enormous cost if you aren’t careful.

Resist the urge to buy things you don’t need or can’t purchase. Keep your credit card for convenience and when you do use your credit card, pay off the balance in full at the end of the month. Don’t charge amounts to your card that you can not afford to pay off in full at the end of the month.

Create a Monthly Budget

One of the simplest ways to get a handle on your finances is to create a budget. Your goal will be to spend no more than your regular income. Once you’ve established a budget listing all necessary expenses, you can make informed decisions about how you make your purchases.

For instance, you’ll start to see how eating out for lunch every day quickly adds up. You can then make a decision to curb that expense so that you can put more into savings to purchase the mountain bike you’ve always wanted or to put towards a down payment on a condo or home you feel ready to purchase.

Now’s the Time to Save for Retirement

It’s never too early to start saving for that time in your life when you can’t or no longer wish to work for someone else. The earlier you start, the easier it will be to generate a sizeable retirement fund with little investment.

Just think: the sooner you have a retirement fund generated that can cover your expenses, the sooner you’ll be able to determine (based on your own priorities) when you can leave your job to pursue other interests or even adventures.

When you job hunt it is a good idea to find out whether your prospective employer offers a company sponsored retirement plan. If they do, that’s great because that means you can put pre-tax dollars into your plan. What’s even better is if your prospective employer matches part or all of your contribution. Many companies offer this benefit.

Such benefits offer a lucrative and affordable way to direct significant amounts of your and your employer’s money towards a savings fund just for you!

Be disciplined about credit, follow a budget, and put money away for retirement – those three steps are just some of the key ways you can manage your finances now and for the future.