Developing good money habits in your early adult years can help you position yourself for financial stability and better grow your wealth over time. The sad truth is that many young adults in their 20's and 30's are unaware of how to best manage their money and will often regret the monetary decisions they made in their 20's and 30's well into their 40's and 50's. For millennials looking to get into good money habits early, below are four things you should know.
1. Money and Material Goods Do Not Create Happiness
While this may seem like an old saying that seems flippant when said, "money can't buy you happiness," is as true today as it was decades ago. When you are young, you may think that if you save and accumulate enough money and wealth, that you will not have any problems, which is hardly the case. Even though money is an important part of life, if you measure your life by it, you are likely to find yourself unhappy. This can also be true of material possessions. When you are young and have disposable income, you can get excited about a new pair of shoes to the top of the line electronic and shell out a significant amount of money only to realize you have little use for the item and may even suffer buyer's remorse. It is essential to remember that that rush of excitement when you see something you want is only fleeting and you may regret your decision sooner than you think. The need to keep up with peers and acquire high-level material items that are outside of your budget is, unfortunately, a quick way to get into debt that can be hard to get out from under.
2. Exercise Caution When Borrowing
Borrowing money is, unfortunately, a necessary thing that most adults will experience throughout their life. While it is easy to tell you to simply not borrow any money in your 20's and 30's, the truth is borrowing, and repaying the money is an important part of establishing a strong credit history. Since borrowing is an essential part of adult life, it is important to exercise caution when borrowing money to make sure you don't become saddled with a mountain of debt that is hard to get out from under.
Unfortunately, many young adults are already saddled with a large debt figure before they even begin their careers due to student loans. When a student in your 20's and 30's you will find yourself bombarded with people offering to loan you money for school with the added benefit of a long repayment period. The problem is, borrowing these large sums of money can have a major effect on your ability to borrow in the future as well as meet your financial needs. When trying to come up with tuition money, first look for available grant and scholarship money and when you have to borrow, only borrow what you will need to cover your most basic costs.
3. Set Plans for Your Money
Make sure that your money has a place and that all of your expenses are accounted for in a budget. It may seem daunting at first to have a strict budget, but it is a great tool to help prevent you from overspending and keep you informed of where all of your money is going. In your budget, you will need to include your housing, utilities, and any debt you might have. You will also want to set a monthly amount for clothing and groceries as these costs can add to a budget quickly and are often unaccounted for. Once you have spread your money out over all the necessities you can think of, you should create a budget for what you will contributing to your savings and emergency fund each month.
4. Know the Importance of Having Cash on Hand
Your first instinct when you get an influx of money is to either pay off debt or maybe even invest it. While it is vital to put money away for retirement early and also keep your debt under control, it is always important to have cash on hand. Emergency situations can arise such as major car or house repairs or even losing a job. There are many bills that still do not allow credit cards for payments such as rent and mortgage, so not having cash on hand when life throws you a curveball can have devastating consequences. Your goal for your emergency fund should be about three months of living expenses. The important thing to remember is always to replenish the money you take out when you are able.
Prepare yourself for your future and help increase your chances of being financially secure by taking money matters seriously in your 20's. By following the tips above, you will be taking the first steps to take control of your money for the rest of your adult life. And if you have nay questions about planning for your future, please feel free to reach out.
Storybook Financial is a financial planning firm determined to help those that believe in the betterment of the world around them. As a fiduciary, our service promotes unbiased financial planning with an emphasis on young medical professionals and their families. We are constantly pushing for new ways to give back to the Cystic Fibrosis community. We are based out of Iowa City | Coralville Iowa, but we serve clients nationwide with our robust virtual presence. This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.