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The Best Budgeting & Financial Tips for Young Adults
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Financial freedom is not just about having wealth—it’s about having the control and flexibility to pursue your dreams. It means making choices that aren’t dictated by financial constraints and living a life you value. Achieving this level of independence requires a solid foundation in financial literacy.
The following financial tips for young adults, from budgeting to investing, empower young adults to navigate the complexities of the current economy with confidence.
Lesson Notes:
- Master budgeting, debt management and savings for financial independence
- Build emergency savings and set clear savings goals
- Allocate income to 50% needs, 30% wants, and 20% savings/debt repayment
LESSON CONTENTS
Mastering money management skills
The foundation of financial well-being lies in proficient money management skills. As a young adult, mastering these skills is pivotal if you want to live and retire comfortably. Otherwise, you may end up stuck in the debt hamster wheel or working in old age due to insufficient retirement savings. Here’s a deep dive into essential money management skills for young adults. Follow them to catalyze your transition from financial novice to financial independence:
Budgeting
Budgeting involves laying out a plan for spending and saving your money within your income limits. Effective budgeting tips for young adults entail living within your means, saving for the future and avoiding unnecessary debt. To get started, begin by identifying all sources of income, followed by a detailed outline and categorization of expenses. This process illuminates your financial reality and highlights areas where you can cut back and save.
Debt management
In some situations, like paying for college or acquiring a home, debt is almost unavoidable. It is worth noting that the average consumer debt balance in the U.S. at the end of Q3 2023 was $104,215 (Horymski, 2024). Thus, debt management is one of the financial tips for young adults that’s crucial. Addressing your debts starts with listing your debts and prioritizing repayments Two popular debt repayment strategies are:
The Avalanche Method: This strategy involves paying the minimum on all debts each month but putting additional funds into the debt with the highest interest rate first. Once the highest-interest debt is paid off, you focus on the next highest. This method will save you the most money.
The Snowball Method: Alternatively, focus on paying off the smallest balances first while maintaining minimum payments on others. This method is satisfying because you see your debts start to disappear faster.
Still, effective debt management extends beyond mere repayment strategies. It includes improving your debt-to-income (DTI) ratio and credit score for a healthier financial future. Additionally, it requires preventative measures like budgeting and building emergency savings to avoid resorting to credit. If you are overwhelmed by debt, seek professional advice from financial advisors or credit counseling services. Ent offers free Financial Coaching and appointments can be scheduled at Ent.com/Coaching.
Saving
The importance of developing a robust savings habit early on cannot be overstated. Start by establishing an emergency fund. So, what’s the right amount of emergency savings? “To prepare for income shocks, many experts suggest keeping enough money in your emergency fund to cover 3 to 6 months' worth of living expenses” (Vanguard).
This can be overwhelming and a goal you have to build towards. "56% of adults wouldn't cover an emergency expense of $1000 or more from their savings" according to this recent Bankrate survey. The key is to get started, so start with a smaller and more attainable goal. This can look like taking a stepping stone approach, first saving a month’s worth of groceries or rent, then growing from there.
This fund safeguards against the impact of unexpected events such as repairs, job loss or medical emergencies. Once your emergency fund is in place, set specific savings goals for larger purchases like a home and events like vacations. Then, adopt a disciplined approach to contribute regularly to these objectives.
Budgeting basics for young adults
A solid, practical budgeting strategy is at the heart of effective money management. Here are detailed budgeting tips for young adults to help you navigate your finances with confidence:
Start with a clear understanding of income and expenses
The first activity in budgeting is to thoroughly understand your monthly income and all your expenses. This clarity is vital for effective money management skills for young adults. Track your income from all sources after taxes and list your monthly expenses, including fixed costs (like rent and utility bills) and variable costs (like groceries and entertainment). This exercise lays the groundwork for setting a realistic budget that reflects your financial reality.
Categorize your spending
Dividing expenses into categories—needs versus wants—can clarify where you can make adjustments. Essential expenses (needs) should always be a priority in your budgeting plan, ensuring that your basic living requirements are met before allocating money to discretionary spending (wants). Categorizing your spending is a core budgeting principle for young adults that helps balance financial responsibilities with lifestyle choices.
Implement the 50/30/20 Rule
One of the best financial advice for young adults regarding budgeting is to use the 50/30/20 Rule. Allocate 50% of your net income to needs, 30% to wants and at least 20% to savings and debt repayment.
Prioritize savings and debt repayment
A critical component of any financial guide for young adults is the emphasis on savings and debt repayment. First, prioritize setting aside money for an emergency fund. At the same time, if you have debt, include regular debt repayment in your budget. Most importantly, learn how to save money and make savings non-negotiable. Automating your savings can help you stick to this goal, ensuring you're consistently building your savings over time.
Use budgeting tools and apps
Take advantage of technology to manage and streamline your budgeting process. See if your financial institution has tools within their online banking platform, or explore budget apps like EveryDollar, PocketGuard and Goodbudget. These tools can help you track your spending, set up budget categories and alert you when you’re nearing your spending limits. They support your budgeting efforts and help develop long-lasting money management skills for young adults.
Review and adjust regularly
Your financial situation and goals will change as your life evolves. This means regular budget reviews and adjustments to respond to changes in income, expenses and financial priorities. For instance, if you were saving diligently for a vacation and then decide to buy a home within the next few months, this requires an adjustment. Now, you allocate more towards your savings goal for a house, potentially delaying or resizing your vacation plans.
Ent Credit Union: Your partner in financial success
At Ent, we empower young adults with the tools, resources and personalized advice they need to navigate their financial journey. At the same time, we recognize that each member's financial goals and challenges are unique. That is why we offer personalized services to support young adults. Enhance your financial skills and well-being through our:
- Educational resources: From financial wellness workshops on budgeting and responsible credit use to online financial literacy courses, Ent provides a wealth of knowledge to help you understand and manage your finances effectively.
- Personalized financial planning: Our team of financial coaches is here to help you create a personalized financial plan that aligns with your goals. Besides, our certified financial counselors can help you with debt repayment, budgeting and your saving goals.
- Accessible investment solutions: Ent Credit Union offers a range of investment options suited for young adults, including traditional and Roth IRAs, mutual funds, self-directed online investing and other savings vehicles. Thus, it is easier for you to start investing for your future.
- Digital banking tools: With our mobile banking app and online financial management tools, keeping track of your finances, setting budget goals and monitoring investments has never been easier.
FAQs
What are the first steps to effective budgeting for young adults?
First, start by tracking your income and expenses to understand your financial flow. Secondly, use the 50/30/20 rule to allocate your income towards needs, wants and savings/debt repayment. Thirdly, leverage budgeting apps to simplify the process.
How can young adults develop strong money management skills?
Educate yourself on financial basics like budgeting and investing, consistently track and review your spending and set clear, achievable financial goals. Practice discipline by adhering to your budget and setting and sticking to a long-term financial plan.
What are some simple strategies for young adults to save money?
First and foremost, automate your savings to ensure a portion of your income shifts directly into a savings account. Utilize budgeting apps to track spending and identify areas to cut costs. Also, comparing prices and seeking discounts for regular purchases can generate significant savings over time. Lastly, prioritize needs over wants and avoid impulse purchases.
How can young adults start investing with limited funds?
Utilize investment apps like Robinhood that allow for small initial investments and take advantage of employer-sponsored retirement plans. Consider low-cost mutual funds or ETFs to start investing with diversified portfolios. You can also connect with your financial institution’s financial services team.
Why is Ent Credit Union the best choice for young adults seeking financial advice?
Ent Credit Union offers financial services tailored to young adults, including educational resources, personalized financial coaching, accessible investment solutions and advanced digital banking tools. Our commitment to your financial well-being makes Ent the ideal partner for navigating your financial future.
Citations
- Chris Horymski (2024, February 14). Experian Study: Average U.S. Consumer Debt and Statistics. Experian.
- RBC Global Asset Management (2024, February). Time in the market vs. timing the market. RBC Global Asset Management.
- USAFacts (2023, November 9). Nearly half of American households have no retirement savings. USAFacts.org.
- Vanguard. Emergency Fund. Vanguard Personal Investors
*PLEASE NOTE: This article is intended to be used for informational purposes and should not be considered financial advice. Consult a financial advisor, accountant or other financial professional to learn more about what strategies are appropriate for your situation.
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