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Top 10 Financial Tips For Young Adults

finance tips for young adults

Managing finances can be challenging, especially for young adults who have little to no experience in navigating it. To add to that, they often have lower salaries and, in some cases, debts to pay off, which only makes it even more difficult. For those struggling with it, here are 10 tips that could help them better manage their finances.

1. Become Financially Literate

Someone starting their career needs to learn the basics of finance. This includes learning about budgeting, saving, investing, and other updates about financial rules and terms, which could help make better decisions.

Look for resources like books, explainer videos, posts, or even news articles to stay updated. Apart from that, attend seminars, sessions, and workshops held by experts in the field to improve financial literacy. This helps in getting familiar with the important financial facts and concepts and helps avoid the common pitfalls in the BFSI industry.

2. Set Clear Financial Goals

A key to effective financial planning is establishing clear and achievable goals. Figuring out one’s short-term and long-term goals helps generate considerable savings. Short-term goals could include saving for a holiday or buying a luxurious item. Long-term goals typically include saving for a car or a house or saving for a wedding, a child’s education, and retirement. 

An actionable plan could be drawn out with these specific financial goals. And it doesn’t stop there; reviewing and adjusting according to the situation is crucial to remain on track with the set goals. For example, if one wants to buy a new smartphone costing INR 1,50,000, they will have to figure out ways to keep aside a part of their monthly income to save up and buy the phone. Individuals can start saving by investing in systematic investment plans, or SIPs. Here, a fixed amount of money is invested at regular intervals, and its rewards come in handy in the long run.

3. Ensure a Budget is Set and Followed

Everything comes down to budgeting in the case of financial planning. For this, calculate the total income from every source and spread it into two different categories. One where it is absolutely necessary to spend the money (bills, rents, etc.) and the other for leisure (movies, dining, etc.). This could help in spotting unnecessary costs.

Following a set budget could be a challenge; that’s why a lot of people use the 50/30/20 method. It’s a simple division of one’s income into 3 parts. 50% of the income would go towards necessary expenses, 30% on non-essential stuff (dining out, movies, etc.), and finally the remaining 20% for saving and other investments. This way, the chances of overspending get reduced significantly.

4. Build an Emergency Fund

Having an emergency fund won’t look like a necessity until the time actually comes. It acts as a safety net for unexpected events like medical emergencies, job loss, urgent repairs, etc. As per experts, at any given point in time, the emergency fund should be handy and have enough amount to take care of three to six months of living costs.

One of the best ways to build an emergency fund is by setting a monthly savings goal. Ideally, this fund should be saved in a different account to ensure that it doesn’t get exhausted. Having this backup also helps one be confident about making better and bolder financial decisions.

5. Invest Early and Regularly

By starting to invest early on, one can truly take advantage of compounding. Even the smallest of contributions can give the biggest returns to an individual if they start investing early. There are multiple options for investing, like stocks, mutual funds, FDs, and Public Provident Funds (PPF) for different individuals depending on varying financial goals. 

Many experts say that the best financial tip for every young adult is to start investing early and be consistent with it. There’s a famous saying as well around this, “Compound interest works wonders over time, so the earlier you begin, the more your money can grow.”

6. Maintain a Good Credit Score

For young adults, many things are dependent on having a good credit score. And one of the things that could affect it significantly is pending dues. Missing payments could negatively impact the credit score, which in turn could make it difficult to get better insurance premiums, get an apartment, or even get a job in some cases.

It is wise to tackle all the pending debts, like student loans, credit card payments, etc., as soon as possible. The “snowball method” is used by a lot of individuals to clear out pending dues. Here, the smallest debt will be cleared out first before moving on to the next one.

7. Get Insurance

One should never forget that life is full of uncertainties. Everything we do has some amount of risk associated with it; the degree of it may vary. Having a good insurance plan in place is always the best idea to get security against such risks. One can opt for life insurance, health insurance, etc., early on, as the premium too would be comparatively low for them if they are in good health.

Things like sum assured, premium costs, coverage benefits, and claim settlement ratios should be considered when choosing an insurance policy. Health insurance should cover critical illnesses, hospitalisation expenses, and other medical costs. One can also opt for term insurance to get good life coverage. With regular review of one’s insurance needs, the policy can be updated as per current and future requirements.

8. Understanding Taxes and Tax Returns

Understanding the concepts of taxation might be taxing, but knowing them thoroughly is crucial to smartly managing money. One should know exactly what portion of their salary is going to be deducted for taxes and how they should file a return. Using dedicated tax software or consulting a Chartered Accountant is the ideal way to learn about these nitty-gritties.

They can help one understand deductions, credits, and other ways to save money at the end of the financial year. A proper record of all the deducted amounts, like the loan interest or job-related expenses, can come in handy when filling out returns.

9. Take Professional Help

Hire professionals who can help out with financial planning. With their expertise and experience in the field, they can map out a solid financial plan for anyone based on their unique circumstances. Their knowledge and guidance could also come in handy for planning things in the future.

Moreover, these professionals will focus on the client’s needs rather than pushing high commissions or management fees. They may handle certain sessions or manage portions of the assets, but make sure to agree on the payment terms in advance.

10. Save For Retirement

No one wants to live with the regret of not having done something earlier, right? Similarly, planning for retirement should begin long before it comes close. Experts say that saving for retirement early on allows young adults to take advantage of compounding returns and allows them to navigate market fluctuations for a longer time. Investing in retirement plans early on ensures financial security and independence in the later years.

One can save via the Employees’ Provident Fund or National Pension System to get better returns in the future. While planning, the amount of money required to maintain a particular lifestyle should also be considered.

Summing Up

Managing finances is a tough and complicated process, but it is a necessary thing to do. The sooner one takes care of it, the better their financial health will be in the long run. By starting small, being consistent, and keeping themselves educated about the small elements, young adults could navigate their way around finances.

FAQs

Why Is It Important To Have An Emergency Fund?

Having an emergency fund helps in covering unexpected expenses like medical bills, car repairs, or job loss. If one doesn’t have it, they may have to rely on credit cards or loans, putting them in debt. One must aim to have at least 3–6 months’ worth of living expenses in the emergency fund for financial emergencies. 

What’s The Best Way To Pay Off Debt Quickly?

One can pay off the debts by clearing out the high-interest debts first, like credit card bills. Some people also use the snowball method, where the smallest debts are paid off first to get things going.

What Is The Best Financial Advice For A Young Person?

The best financial advice for a young person is to invest wisely and regularly to reap its rewards in the long run. Apart from that, they should also create a safety net for themselves by buying insurance and having an emergency fund.

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