Learning to budget and manage your finances as a young adult is one of the best things you can do for your future. Not only will it help you maintain control of your spending, but it can set you on a path to early financial freedom.
But let’s be honest, when you’re just starting out, budgeting, saving, and investing can seem daunting and complicated. Beyond that, it requires patience, self-control, dedication, and will.
But if you’re prepared to put in the effort, you will reap the rewards. And the earlier you learn how to properly handle your money, the bigger those rewards will be.
Fortunately, there are all sorts of things you can do to make personal finance easier.
In fact, for the rest of this guide, I’m going to reveal 10 of my absolute favorite financial tips for young adults.
So, if you’re ready to set your sights on a life of financial security and freedom, stick with me!
1. Set Some Financial Goals For Yourself
The first requirement of any budget is to set financial goals.
After all, if you have no idea what your objectives are, it’s impossible to track your progress.
Also, if you’re not aspiring to a specific figure or purchase, you will lack the motivation to budget, save, and invest your money.
Financial goals need to be realistic, but they also have to challenge you.
You should consider your monthly income and expenditures and ensure you’re capable of reaching the target you set for yourself.
When setting your financial goals, you need to consider three core things:
- Determine a number: You need to quantify your financial objective. For instance, you could set yourself a savings goal of $10,000. This gives you a number to chase, and thus, the ability to reverse-engineer your goal and transform it into a defined process.
- Set a time limit: Decide how long you will need to save the desired amount – a year?
- Make sure it is realistic: As mentioned, your financial goal needs to be realistic. If you’re never going to achieve it, you will quickly run out of motivation. That said, it is ok to stretch yourself a bit and set a goal that challenges you.
As an additional note, you should also define where you will save the money and how often you plan to make contributions to your goal.
Want to learn more about personal finance? Check out some of our other helpful posts:
- Living On A College Budget: 21 Tips That Won’t Wreck Your Fun!
- 7 Killer Ways To Simplify Your Financial Life
- How To Make Better Financial Decisions (5 Simple Steps)
- What Is Impulse Spending? (Plus 10 Easy Tips To Control It)
- 21 Ways To Save Money In Summer (And Still Have Fun!)
- 15 Ways To Save Money On Rent
- 5 Urgent Things To Do If You Have No Savings
2. Use A Zero-Based Budget [And Work Backward From Your Goals]
Have you ever heard of a zero-based budget?
Basically, it’s an exact plan for how you’re going to use your money over a specific time period—typically a month. From giving to saving and spending, a zero-based budget forces you to give every dollar of your income a specific purpose, and in doing so, allows you to take complete control of your financial life.
Instead of being reactive, zero-based budgeting is proactive and requires you to work backward from your monthly savings goal.
For example, if your goal is to save $10,000 in twelve months, you would need to allocate $833.33 per month to your savings. From there, you just need to use your budget to figure out how to live off the amount of money that is left over.
Although it has a fancy name, you can also think of it as “specific” budgeting! It ensures you live within your means, meet your monthly payments, and stay on track for all of your financial goals.
3. Aggressively Save An Emergency Fund
As a young adult, you’re transitioning into a phase in your life where you’re gaining independence.
You may be about to move out of your parent’s home and are probably enjoying your new job. Things are starting to look great, and you’re excited about your future [as you should be!]
But maturing into an adult also means you need to prepare for emergencies.
Seriously, anything can happen in life. And you can either start preparing now, or suffer the consequences of being unprepared when an emergency hits.
For instance, you could lose your job or become sick unexpectedly and have to pay expensive medical bills.
These things happen, and nobody is immune.
So, before something like this happens to you, we recommend you aggressively save towards an emergency fund. You can decide for yourself how much money you should keep in the fund, but we recommend you save up at least six months’ worth of your living expenses.
I know that might seem like a daunting number, but I can’t stress enough how important an emergency fund is for your financial health.
Additional Note: To manage your emergency fund properly and ensure you don’t touch it unless you absolutely need it, consider setting up a whole new account. We recommend the Axos High-Yield Savings Account. With no monthly fees, an interest rate that crushes the national average, and the fact that you can open an account in less than 15 minutes online, this account makes for a great place to keep your emergency fund.
4. Log Your Expenses Into Your Budget Every Day
Another great financial tip for young adults is to spend time every single day logging your expenses into your budget.
Seriously, it only takes about 10 minutes a day, so do your best to make this a habit.
Start asking for a receipt when you checkout at the grocery store, and keep a meticulous log of every cent that you spend. When you have your expenses in front of you, it’s easy to look for ways in which you can make savings.
It also ensures you hold yourself to account and don’t spend more than you should on certain items.
Ultimately, the more consistent you are about logging your expenses into your budget every day, the easier budgeting will be for you.
5. Stay Away From Debt
Debt sucks, regardless of what some people try and tell you. There is no such thing as good debt!
Sure, some debts are worse than others, but ultimately, when you go into debt, you are just making somebody else rich.
When you’re a young adult, it’s a time in your life where you make some of the most important decisions that will affect your future wealth.
From deciding where to live, whether to buy a house, what career you want to pursue, and when to settle down and start a family, the decisions you make now come with a long-term impact.
So, with so many things to consider at a young age, you need to make a conscious effort to stay away from debt at every turn!
When you really think about debt, you are making other people wealthy while damaging your financial future at the same time. It’s a painstaking reality that somehow clever marketing companies have spun to make it sound like a good thing!
Our advice is to be patient, save your money, and pay cash for everything. Live by this golden rule: If you can’t pay for it outright, you can’t afford it.
While it’s difficult not to be duped by marketing, you need to stand firm and be true to your budgeting principles! Trust me, the more you avoid debt, the better your life will be.
6. Invest For The Long-Term
When young people begin budgeting, they often get caught up in short-term thinking.
In other words, they look at their finances in terms of weeks and months instead of years and decades.
Although it’s super important to stay on top of your short-term financial goals, you shouldn’t lose sight of the bigger picture. The earlier you can save and invest, the better your returns will be over time.
In fact, we suggest opening a ROTH IRA as soon as you possibly can, and do your best to max it out every year. You should also contribute as much as you can to your 401K, and take advantage of any company match that might be available to you.
Unfortunately, we’re not really taught about these things in school and college, so the onus is on you to do the research and start investing for your future.
We also recommend that you invest as much as you can in mutual and index funds with low expense ratios, so you can begin to benefit from compound interest.
Remember, the sooner you invest, the more money you will earn over time.
7. Allocate Some Money For Fun/Recreation
Budgeting is serious, but it doesn’t mean you should forget to live your life!
Everyone has their own passions and interests, and they’re what makes life worth living.
Remember, budgeting isn’t about deprivation; it’s about maximizing your income and living life to the fullest. So, if playing golf a couple of times a week or grabbing drinks with your friends a few times per month brings you joy, include them in your budget!
Just consider the zero-budgeting rule here.
If you can’t pay outright, you can’t afford it.
While this might mean you have to make some adjustments when it comes to fun and recreation, you certainly shouldn’t deprive yourself of all the things you enjoy doing.
8. Try To Keep Your Fixed Expenses Low
A fixed expense is any unchanging expense that occurs on a regular basis. For example, things like rent, insurance, utilities, subscriptions, debt payments, and internet are considered fixed expenses.
And honestly, they can get out of hand, quickly.
So, one of our best financial tips for young adults is to limit your fixed expenses as much as possible and only sign up for things you absolutely need.
For instance, paying your water bill is a necessity, as you don’t want the company to shut off your water.
But do you really need to pay $100 per month for the newest iPhone?
Or do you really need that expensive $400 per month golf membership when you can play at public courses for $20 per round?
Keeping on top of your monthly expenses is about making wise choices.
If you can reduce your fixed expenses down to the bare essentials, it gives you more money to play with and allocate to various other financial goals.
9. Use ‘The Debit Card Only’ Rule
Here’s a crazy idea – chop up your credit cards. Or, if that feels like a step too far, take it out of your purse or wallet and keep it in a drawer at home.
Then forget about them!
Get into the habit of only spending money that you have, either by paying for things with cash or by using your debit card only.
While this might go against the grain of what your broke friends tell you to do, it is the best way to avoid the crushing burden of credit card debt.
Plus, only using one account for expenses and purchases makes budgeting a lot easier. You only have to monitor one account instead of several, and you don’t have payments leaving from different sources.
Seriously, my wife and I shredded our credit cards 3 years ago, and our financial life (especially budgeting) has been significantly easier ever since.
10. Don’t Quit
Despite your best intentions, budgeting won’t always go to plan.
After all, nobody is perfect.
You might slip up occasionally and overindulge, but that’s okay!
Don’t punish yourself.
Just pick yourself up and move on to the next month.
If you’ve started budgeting from a young age, you’ve had a huge head start on so many other people in life. So, if you have a bad month here or there, don’t let it set you back.
Budgeting is a lifelong process, and the longer you stick with it, the greater the rewards you will experience.
Put simply, whatever you do, don’t quit.
If you’ve recently started to budget in order to regain control of your finances, congratulations!
You’ve just made one of the most important decisions of your life.
We hope you can see from these 10 financial tips for young adults that budgeting doesn’t have to be a painful, herculean task.
In fact, if you do it right, it actually leads to financial freedom.
Just remember, above all else, don’t forget the golden rule of budgeting: if you can’t pay for it outright, you can’t afford it.