The importance of controlling your finances increases as you get older. There will come a time when you will be completely independent and will be expected to pay your rent, food and utilities bills on your own. Spending the time learning how to budget and manage your money now will set you up for long-term financial success. Keep reading for 15 money management tips for teens that will help you embrace your newly acquired freedom and live your life without unreasonable financial barriers.
15 financial tips for young people
1. Exercise self-control
One of the challenges young adults face is learning how to spend money responsibly. It’s easy to go to the mall and buy a pair of sneakers on your credit card, and not worry about paying them off until the end of the month. But it would be better to wait until you know you have cash, to avoid paying unnecessary interest.
If you use credit cards for most of your purchases, remember to pay your bill in full each month. Leaving unpaid balances creates an opportunity for you to fall into debt and puts your credit score at risk. When dealing with credit cards, always spend within your means and never open or carry more than you can track. Exercising this kind of self-control will allow you to better manage your money and build a positive credit history.
2. Take control of your financial future
When you learn how to manage your money and plan ahead, you will encounter many different opinions. Your aunt might think it’s smart to invest in real estate and your dad might tell you to put your money in stocks. However, no one knows your money better than you.
Avoid relying entirely on the advice of others and take charge of your financial future. Look for books on personal finances to give yourself some guidance. After doing your research, organize your finances as you see fit so that you are never surprised or worried about what you should be doing with your money.
3. Spending Tracking
Take a moment to consider how you spend your money each month. It would be helpful for you to see exactly how much impact Starbucks has every day. With a comprehensive view of how you use your monthly income, you can make the necessary changes to have more control over your spending habits. With the help of apps like Mint and its budgeting tools, you can easily keep track of how much and where you spend, so you can manage your money properly.
4. Adopt the 50/30/20 . rule
The 50/30/20 rule is a tool used by money-conscious individuals who want to align their savings goals with their spending habits. The budget system works by grouping after-tax income into three separate categories: essentials, wants, and savings.
Fifty percent of your money will go toward necessities – these are the bills and expenses you have to pay each month like housing, food, and transportation. Thirty percent is then placed on desires for the month. Think of this as your discretionary money that you can use for things like daily coffee tours or weekend adventures. Set aside the last 20 percent for your savings. Worry about this category after you’ve paid for your essentials, but before you plunge into your discretionary cash. This will allow you to spend with confidence, knowing that you have taken care of all your financial responsibilities for the month.
5. Starting an emergency fund
It is critical to prioritize your financial stability by creating an emergency fund that you can refer to if necessary. No matter how low your salary or how much credit card debt you owe, always make sure to save a portion of your income for an unexpected rainy day – as a general rule, aim to save about 3-6 months worth of income. With those savings away, you can sleep more comfortably knowing that you’re prepared for any potential financial problems that might come your way.
Once you get used to treating your savings as a non-negotiable expense, you’ll soon find that you’ve set aside enough to go toward a retirement plan or down payment for your first home. To prevent inflation from eroding the value of your money, consider looking for a money market account to put your money in. Just make sure that this account will allow you to access your funds quickly in case of an emergency.
6. Salary negotiation
When looking for ways to save more money, people usually have two options: lower expenses or increase your monthly salary.
The first option is often chosen because it is less intimidating. However, pursuing a new high paying job opportunity by working with your current employer to negotiate a higher salary is a way to improve your quality of life without sacrificing some of the things you love. The worst thing they can say is no. But if they say yes, you’ll be able to save more each month or take the weekend trip you’ve been planning.
7. Protect your wealth
It is necessary to protect the wealth that you have worked so hard to earn. There is no worse feeling than waking up one day with an empty account balance. Remember that inflation can kill your money if you are not careful. Look for a high-interest savings account that allows you to earn more money over time with little financial risk.
Insurance is another way to protect your wealth. If you rent and live in an apartment, purchase renters insurance to protect your property in the event of a fire or burglary. You can also consider disability income insurance, which protects your ability to earn income. Should you become ill or injured, you will have a steady stream of income to keep you afloat for an extended period of time until you recover.
8. Save for retirement
The first thing to remember about saving for retirement is that the earlier you start, the better off you will be. Compound interest can be hard to understand, but the basic principle is that the faster you start saving, the less money you’ll need to invest to reach the amount you need for retirement. So in fact, the $100 a month you put in now would be more valuable than the $1,000 a month you start saving 20 years from now.
Researching company-sponsored retirement plans is a great way to get started. These plans provide employees with the ability to invest pre-tax dollars into their retirement account with the company matching a specific portion of the employee’s investment. This helps you prepare for a secure financial future while enjoying the life you live now.
9. Stay healthy
Although our goal each month is to keep as much money in our pockets as possible, it’s not smart to dismiss medical insurance as an unnecessary expense. Have you thought about what you would do if you had to go to the emergency room for a minor accident? A single visit can cost you thousands of medical fees. This small investment each month will reduce the risk of financial setbacks and give you access to the medical care you need to stay healthy.
If you are currently employed, your job may offer health insurance through high-deductible plans that help you save on coverage premiums and make you eligible for a Health Savings Account (HSA). If you need to purchase health insurance independently, you can browse through different offers in the Health Care Act Health Insurance Marketplace. Here they provide information on federal and state plans that you can compare to find the best price for you and your budget.
10. Learn how to file taxes
Taxes can be intimidating to those who do not have experience filing them each year. If you are afraid or have a problem, keep in mind that there are a lot of software available that make the process incredibly simplified and painless to file. TurboTax is one of the tax filing tools that millions use every year. However, make sure that you do not lose any money as you go through this process. There are a lot of discounts that people don’t realize can put money back in your pocket.
11. Keep your credit score high
An important factor affecting your financial well-being is the strength of your credit score. From opening credit cards to securing your first apartment or qualifying for a car loan, your credit score and history play an important role in your life as an adult. By paying your bills on time and maintaining a good debt-to-asset ratio, you will be able to undertake life’s most memorable endeavors knowing that your credit will work in your favour.
12. Diversify sources of income
The days of working a 9-5 job for 50 years in hopes of saving enough money for retirement are fading fast. Younger generations are turning towards self-employment and entrepreneurship to take control of their career and financial future. This trend has made getting multiple sources of revenue streams easier, as you can create a group of different clients to work with or generate passive income.
Are you looking for a side business to increase your income? Here are some ideas to make some extra money on the side:
- food delivery services
- Private classes
- Car rental services
13. Don’t fall for the social media hoax
Social media and the lifestyles portrayed by influencers can lead you to wonder what you are doing wrong with your life. It’s hard to see people your same age driving in luxury cars flaunting their expensive clothes and jewelry. As difficult as it may be, try not to be fooled by these interfaces.
Many influencers today rent homes and vehicles to showcase a lifestyle that even they can’t keep up with. Spending your money trying to live an unrealistic lifestyle will quickly sink you into debt. You don’t need to delete social media entirely – just try to pay less attention to what you wish you had and be more appreciative of what you do.
14. Try personal finance apps
For many years, young people avoided controlling their finances because there was no simple way to do so. With the help of Mint personal finance app and other similar tools, you can have one central platform to track your budget and stay on top of how you are managing your money. The features and designs in these apps make it more attractive and fun to explore. You can forget about all your spreadsheets and calculations and just turn to your phone to do the work for you. Honestly, what could be better?
15. Talk to a financial advisor
Oftentimes, people seek financial advice only when they have a lot of money or when they are going through financial troubles and are looking for guidance. Avoid falling into any of these categories and be proactive. It never hurts to get advice on how to reach your financial goals. Even if you haven’t done anything, a counselor can help you create a budget and put some goals in place. Their job is to help you build a future for you to look forward to.
There is no better time than now to control your budget and spending habits. You don’t need to be a maths expert or a tax professional. By following these 15 tips, you will be able to set yourself up for success when it comes to your financial future.
Sources: Investopedia | health care