Let us start this post by assuming that you are not only a young adult but also have crossed the line of education and have started earning a steady income. It is, therefore, time to start creating healthy money management techniques that will hold you in good standing in the years to come.
Initially, it can be challenging to control your spending. There will be pressure to maintain a certain standard of living and lifestyle, and make a good impression on friends and family. After all, you have attained what many only dream of: to get a good job and launch your career. You must, though, take care early that meeting these standards does not lead to reckless spending.
One of the ways to do so is to use a personal financial planning app to help you navigate through the unknown, turbulent waters of financial well-being. However, you have a big advantage, and that is having time on your side. You have ample scope to learn and apply critical financial skills that will fetch you rewards in the long term.
In the past, young adults had to slog it in a hit-or-miss scenario to ensure their financial health. Not anymore. Today, you have personal finance tracking apps and personal expense tracking software to help you gain a solid footing in the financial world.
Before getting to the tips to improve your personal finances as a young adult, it is necessary to learn about creating a personal financial plan. Invest in the best financial planning software to be seamlessly guided through the process.
Creating A Personal Financial Plan
Goal setting
In any sphere of life, you need to set a goal before you can hope to achieve anything. It also holds true for a personal financial plan. A personal financial app will prompt you to decide your financial objectives, whether it is generic or specific. For example, you might take the initial small steps to saving for a home or starting a business soon.
Once you have set your life goals, set financial goals. Classify them into categories as follows.
Establish a budget
The general notion is that following a budget means finding ways to cut corners. No, it is far from that. Rather, setting a budget is a means to meet the set financial goals and includes income and expenses.
A personal financial planning app will help you organize expenses, the critical component of budgeting. Divide the projected expenses into two segments. The first is the fixed expenses, comprising of debt repayment, transportation, and others. The other is the variable expenses made up of entertainment, dining out, gifts, and more, over which you have more control than fixed expenses.
Use the best financial planning software to be advised on ways to spot opportunities to increase your savings level so that you can add small extras to an emergency fund. This fund is extremely important, more so as a young adult who cannot anticipate what life has in store for you, around the corner.
The standard norm is to have three months of emergency savings put aside in case you want to switch jobs for better opportunities. In the USA, barely half of young adults can achieve this benchmark.
Finally, it is vital for young adults to manage debt optimally, which includes high-interest credit cards. Liquidating student loans should also be a part of this section. Managing and minimizing debt is also integral to financial planning with a personal financial planning app, as it offers effective recommendations in this regard.
There are two ways to handle debt management.
Paying off loans as part of creating a personal financial plan will help you in the long run to get settled in life. Debt impacts credit scores, and a low score will impact your ability to get loans for high-value assets like a home or a car. Additionally, high-interest debt like credit cards lingers longer on your budget, thereby costing your card purchases more than the original price.
Now that you know how to create a financial plan with the help of a personal financial planning app, let us explore how you can improve your personal finances.
5 Financial Tips to Improve Your Personal Finances as a Young Adult
Here are 5 financial tips that will improve your personal finances as a young adult and lay the foundation for optimized financial stability in your life.
When you are embarking on a career, you must learn the basics of finance. You need to know about budgeting, investing, saving, and the prevailing financial rules and regulations in your state so that you can make better financial decisions.
As soon as you start earning, go through resources to stay updated. These include books, news articles, financial posts, and explainer videos. Take time out to attend seminars and workshops conducted by professional financial consultants; there is a lot to learn from them. You will acquire familiarity with financial facts, concepts, and data, and how to use them for your benefit.
A financially literate young adult is already one step ahead in carving out a sound monetary plan. They will be able to set financial goals through a personal finance tracking app, both in the short and long term, and start saving for the future very early.
Handling all the inflow and outflow of money each month in an organized way is the first step towards financial stability. To start, understand the difference between wants and needs, a critical factor in expenses. Take care of the needs first (food, housing, energy). With the leftover funds, prioritize your wants (entertainment, new phone, dining out). You must budget for some fun, but learn to sacrifice a few wants to start saving.
Once you can control where your money is flowing, you can track how much you save. One way to do so is to set up automatic transfer of funds to high-yield savings accounts. Connect a personal financial planning app to your bank account and get regular updates on your spending patterns and whether your savings levels are as per the goals set by you.
It is here that, as a young adult, you must understand how your money grows. A compound interest account fetches higher returns than a simple interest account. Compound interest is applied not only on the principal amount but also on the interest previously applied to the principal.
Take the benefit of compound interest early in your life. As soon as possible, start contributing to a 401(k) or Roth IRA. Small amounts contributed when you are in your 20s will grow significantly over time.
Automate bill payments with your bank; it is easy to set up. Credit card and other recurring bills, such as utility payments, can be seamlessly paid through auto setup. Ensure that your credit card balances are low and paid on time. Use credit cards for essentials only. These steps will help you maintain a good credit score, which in turn will go a long way toward a hassle-free financial future.
When it comes to investments as a young person, starting early is one of the best moves you can make. With time on your side, you can invoke the power of compound interest to watch your money grow as you start investing.
The stock market is one of the best investment options you can think of. Slowly learn about this financial beast so that you can benefit from it throughout your life.
Managing finances can be daunting for young adults in the early stages when they have no experience navigating them. At this age, you will have low salaries and debts to clear. It is prudent now to use personal financial planning apps to help you till you pick up the ropes of the financial world.
One of the ways to improve your personal finances as a young adult is to get insurance. Life is full of uncertainties, and you must be prepared for any eventualities. A health condition can set you back financially, and at an early stage of your life, you will not be in a position to afford the problem. Having insurance, whether it is life or health insurance, should be an integral part of your planning to improve and stabilize your finances.
Understand insurance jargon like coverage benefits, sum assured, premium costs, and claim settlement ratios. Your health policy should cover critical illnesses and hospitalization expenses. Review your policy periodically and update it as per current and future requirements.
Knowing about taxes and tax returns is a smart way to manage money. You must know the amount of money from your salary that goes into taxes and how to file returns. Tax amounts will be from your income only and hence, affect your savings if not calculated and paid correctly.
Once you input all your financial data into the best financial planning software, the tool will automatically calculate the quantum of taxes on your behalf. You will learn about deductions like loan interest as well as tax rebates that you can claim from your job-related expenses. All these will help you to accurately file your tax returns and prepare you for optimizing your financial health in the future.
Summing Up
As a young adult fresh on the job or with a few years of experience, take the help of personal financial planning apps to assist in financial planning for a secure future. These apps offer plans that are customized, keeping your unique requirements in mind.
