Financial advice for young adults – a thorough explanation
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This article will give you some essential financial advice for young adults to help you get started.
As young adults, it’s easy to get caught up in the excitement of starting your career, exploring new experiences, and enjoying your newfound independence.
However, it's equally important to start thinking about your finances early. With proper financial planning and knowledge, you can set yourself up for a secure future, free from financial stress and worry.
6 pieces of financial advice for young adults
Budgeting is a powerful tool for managing your finances, and it's also incredibly simple. The process involves determining your income and expenses and ensuring that you can meet all of your financial obligations.
With budgeting, you can identify areas where you might be overspending and find ways to save money, as well as plan for the future.
Financial advice for young adults – a thorough explanation
When creating a budget, there are some key considerations:
Firstly, it's essential to be honest about your spending habits. This information will help you find ways to cut costs, such as canceling unused subscriptions or negotiating a better mobile or broadband rate.
Next, aim to include some savings goals if possible. This can be challenging, especially if you're starting out with a low income. Your priority should be to make sure you can cover all of your expenses before setting aside funds for savings.
If you have disposable income, many people follow the 50:30:20 rule. This means dedicating 50% of your monthly income to necessities such as bills and groceries, 30% to non-essential spending, and the remaining 20% to savings.
2. Track your spending
After establishing a budget, monitor your spending to make sure you're sticking to it.
It's okay if you slip up and go over budget occasionally, but don't let that lead to a loss of financial control. Utilizing an app or a bank account that categorizes your transactions can be useful in tracking your spending and identifying areas where you can cut back.
Saving on monthly expenses is made easier by shopping around for more affordable options.
3. A rainy-day fund as financial advice for young adults
Now is time for building an emergency fund. An emergency fund is a crucial component of your financial plan, designed to help you cope with unexpected expenses without falling into debt.
You may find that you have more disposable income than you expected after budgeting, which means you can save even more. Aim to keep 3-6 months of your salary in an easily accessible savings account.
To further secure your financial future, consider purchasing financial insurance products. Income protection insurance, for instance, can provide peace of mind by covering your bills in case of illness or injury.
As you age, it may also be wise to invest in life insurance to support any dependents in the event of your premature death. Before purchasing any insurance, check to see if your employer offers any benefits that may help you with this.
4. Prioritize your debts as financial advice for young adults
Paying off debt should be a top priority in managing your finances, as the interest on borrowing often exceeds the interest earned from savings.
It's crucial to keep up with the minimum monthly repayments, but if possible, make overpayments if allowed by the lender.
When dealing with multiple debts, focus on paying off the most costly ones first, for example, credit card debt is usually more expensive than a bank loan, so prioritize paying off the credit card debt.
5. Use credit cards wisely
By taking advantage of a favorable introductory purchase offer, you can spread the cost of a big expense over a considerable period, such as 3 years, as long as you make your minimum monthly repayments.
Additionally, using a credit card can offer extra protection on purchases over £100, as well as the potential for cashback and other perks.
However, it's important to use a credit card cautiously. Keep in mind that a credit card is essentially "buy now, pay later" and not "buy now, pay never".
Avoid letting your credit card balance escalate to the point where you can't make your monthly repayments. And be aware that if you don't pay off your balance before the end of an introductory period, you'll be charged with high-interest fees.
6. Plan for the future as financial advice for young adults
Starting to plan for your retirement at a young age is a smart choice. By investing in a pension now, your contributions will have time to grow over the years.
If you're employed, it's likely that you'll be enrolled in a workplace pension plan, and your employer will also make regular contributions on your behalf. Additionally, the government offers a tax break on your contributions, making a pension a tax-efficient way to save for the future.
It's important to start contributing to a pension as soon as possible. If you wait too long to join a pension plan, you may need to contribute a larger amount to make up for lost time and still receive the same benefits. Building a habit of saving for your retirement from an early age is a wise move.
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