Good financial habits can be hard to pick up. Young adults are often ridiculed for their lack of knowledge and experience in paying bills, saving, spending wisely and general financial knowledge. Instead of constantly criticizing millennials for their "adulting" abilities, here's a guide to help us stand up on our financial feet:
1. Establish A Budget
This is not a quick and easy step: setting up a budget requires tracking your spending habits, income, saving and expenses. It may be tempting to underestimate your spending and give your budget a favorable outlook.Don't do this. Be realistic about how much you will spend going out to eat, shopping, on gas, gifts and everything in between. While you can reduce your spending habits with self-control, be realistic and create a budget you can actually stick to. This will help you think about saving and spending in a more long-term state of mind.
2. Build Credit
You probably know the dangers of debt and credit cards already. However, they are necessary to establishing your credit. If you ever want to buy a house someday, I suggest you start building credit ASAP! Do your homework: find a credit card that will fit your needs. Be sure that if your credit card will be connected to a parent that the card will build your credit only. If not, maybe opt for a secured card, which is designed for people with no credit. It may be a pain to put down a deposit, but it will be worth it to know that the card is starting to build your credit alone.
3. Watch Out For "Rewards"
If you are awarded points or cash back when you spend on certain things, it can be tempting to spend more than you really need to. Before buying anything, consider whether or not you truly need or want the purchase. Cards that reward you for gas and groceries are ideal because they are things you would likely need to buy anyway. Avoiding any kind of impulse purchases is key to sticking to your budget. Resist the temptation!
4. Do Some Homework
"Thank god my high school taught me the Pythagorean Theorem but not about APR!" Boo hoo. This is not an excuse in the age of information. Make sure you know how credit works, what inflation is, what APR (annual percentage rate) is, the difference between a checking and a savings account is, what a credit score is and any other financial basics. Google anything you don't know or ask a parent or a professor. Don't worry about looking dumb; you're only dumb if you don't ask!
5. Read The Fine Print
Before you get any account, card, make an investment, or sign any kind of contract, know key things to watch out for. Chances are, people are trying to up-sell something to you. Don't gloss over any important details. Ask about interest rates and late fees after the introductory period and the fine details of financing periods. The representative you are talking to may not necessarily be trying to pull the wool over your eyes, but it's important to watch out for yourself by asking about more than the shiny rewards and special offers they want to tell you about.
6. Protect Your Identity
Identity theft and fraud are extremely difficult to fight. Be vigilant for suspicious activity by checking your bank statements regularly and keep track of your purchases. Set secure passwords and don't do online banking activities on non-secure wi-fi lines. Check your credit score if applicable. Watch out for phishing emails and have a plan of action if you encounter one or think you may have been scammed. You can never be too careful.
7. Save Up
Save your money. Ideally, you should start investing and saving for retirement in your 20s. It sounds scary, but the more you put away now the better off you will be. Save for emergencies by keeping money in an emergency fund. Saving for big purchases will ensure that you truly want to buy the item before you spend the money. You should save ten percent of your income, or more if you can. If you are living at home and not paying bills, save as much of your income as you can for the day when you are financially independent.
8. Stay Informed
Keep up with national and international financial news. What's the stock market doing? Did the Fed just raise or lower the nominal rate? Did a major company acquire another company? What are gas prices doing, and are we in a recession? All of these factors can affect inflation, unemployment, the stock market and interest rates, which affect all of us. It's good to know and understand what's going on in the world. You don't have to be a Wall Street analyst, but you should have some general knowledge about current events.
9. Don't Buy Things You Can't Afford
I think this merits a category all its own. Be careful when making big purchases like cars, houses, large appliances, pieces of furniture, electronics and just about everything else. If the entirety of your paycheck goes to payments for that brand new car, you won't have any left for your other expenses. Though you may convince yourself that you need it, you deserve it, you can't live without it, walk away. Don't ruin your financial health for one object.
10. Money Isn't Everything
The world is obsessed with money, but you don't have to be. Wealth doesn't mean happiness. Work hard, save up, budget and enjoy watching your investments appreciate, but don't forget that the best things in life are free.
