Young people need to be taught the basics of personal finance to guarantee them a bright and prosperous future.
Here are five tips that all young people should understand while they are learning how to become their own financial planners :
1. Learn How to Tame Your Impulses
Young adults are notorious for letting their emotions get the best of them, whether behind the wheel of a car or while spending.
One of the first arenas where young men and women must learn self-control is when in the driver's seat. Drunk driving and reckless driving are not only dangerous to the driver, her passengers, and others on the road, but can be extremely costly. Learning how to exercise restraint while driving will help the young driver avoid DUI/DWI fines, lawsuits and sky-high car insurance costs.
Youth must also learn the value of money and how to spend within their means. During the evolution from child to adult, people will often make the mistake of spending or buying things that are either superfluous or exorbitant for their budgets. This is all part of the learning process. Parents and adults need to ingrain younger people with the mindset of delayed gratification and good spending habits.
Have a good idea of what you earn and how expensive goods and services are relative to your income. Set a budget and re-evaluate it every month to make sure you are earning enough and your spending is not out of control. Limit your use of credit – especially easy lines of credit such as credit cards – to avoid tripping into a bottomless pit of debt.
2. Educate Yourself
If you are in college, do your best to stay in it. College is a major investment, but a degree will open doors and on average provide you with better opportunities to make money and gain jobs in the future.
Of course, this depends on every young person's circumstances. Some cannot afford college, and that's OK. For those not currently in college, consider enrolling or research programs that fit your financial condition and your life goals.
Educating yourself doesn't just involve going to a place of higher learning. A large percentage of young adults – even those who have graduated from college – still don't have a good grasp of personal finance.
That is why it is imperative to educate yourself about personal finance even if you have not taken any classes or learned from a mentor on this subject. Visit your local library and check out books on personal finance. Learn about bank accounts, interest rates, different kinds of investments, and their advantages and disadvantages. Having a good foundation in the basics is essential to developing good financial habits.
When you start receiving paychecks, you'll want to continue your personal finance learning to educate yourself about taxes. Taxes can seem complicated and intimidating, which is why many people go to tax experts for help. While some sort of assistance is advised, doing your taxes yourself could save you hundreds or thousands of dollars a year.
3. Plan for Retirement as Early as Possible
Retirement may seem like something far, far away from now, but planning ahead can mean the difference between a comfortable retirement and one that forces you to keep working well beyond retirement age.
Begin saving for retirement with your first job. Many employers have company-sponsored retirement plans, which are a great choice because you can get employer matches and contributions, which is equivalent to getting retirement money for free.
If your company has a 401(k) plan for you, you'll want to sign up for it. If not, save a percentage of each paycheck into an IRA.
Starting early when saving for retirement can have a drastic effect on the amount of money you end up with after retirement. A 25-year-old who saves $200 a month into a retirement fund that earns 7 percent annually will have saved more than half a million dollars by the age of 65. If that young adult had waited 10 years and instead started saving at the age of 35, his retirement fund would only be half as much come retirement age.
This is because the concept of compounding interest benefits those who start saving sooner.
4. Plan Ahead
Young people won't just want to plan ahead with just retirement. They'll want to plan ahead in every big step of their lives.
Establish an emergency fund in the case of unexpected expenses. Whether you encounter car trouble, a natural disaster, or unforeseen health bills, an emergency fund can act as a protective buffer against your income and your savings.
Young adults will usually not have the money to buy all the big purchases they will depend on. Taking out a mortgage or auto loan are big commitments, so it is important that they understand they need to plan their payments so they don't end up defaulting or in debt. Life is full of goods and services that cost a lot of money, like weddings and vacations. With the right planning and the right budget, these occasions will not only be possible but will also come stress-free.
5. Protect Your Money
Young or old, individuals will need to protect their money and provide it with the best environment to grow safely and securely.
For younger people who may not have a lot of cash or savings, protecting your money usually comes in the form of insurance. Home, health, and car insurance are some of the most popular options and anyone who has an automobile or house should strongly consider insuring them.
You can learn about investing with a wealth of resources on the Internet and at your local library. While investing on your own can be fruitful, you'll want to evaluate your risks.
If you are not comfortable investing on your own, consider a financial adviser or planner. They will cost some money, but you will know that you are trusting your investments to someone who has experience with money management.