I know our parents always stress to us that we must take responsibility for our actions and never to place blame on others. But when it comes to being financially responsible the fact still remains that there aren’t any required courses taught in high school or college about personal finances. When a young adult is making the transition into adulthood most of us are clueless about how to manage our money so we learn by trial and error. In order to avoid some costly mistakes the following are 7 ways a Young Adult can become more Financially Responsible.
- Discipline Yourself Most financial mismanagement comes from being impatient and the need for instant gratification. The sooner you learn the art of discipline the sooner you will be able to get your finances together. Instead of using credit cards for everyday purchases, learn to save and budget for the things you need and only use credit cards for emergencies. The money you will save on interest alone will be well worth the wait.
- Make Your Own Financial Decisions It is imperative that you learn how to manage your own money. Relying too much on others (Especially your parents) will cause you financial harm for sure. You know the saying …Give a man a fish and he’ll eat for a day but teach a man how to fish and he’ll eat forever… That’s what you want to do… Eat forever! Too often our parents, uncles, aunts, cousins and friends give us advice based on their situation or experiences and because we don’t know any better we listen. Their advice is never ill-intentioned but you also know the other saying …what’s good for the goose isn’t always good for the gander. Instead of relying on their advice, take control and read as much as possible; start with a few basic books on personal finance. Once you are equipped, don’t allow anyone to throw you off track of your financial destination! (This includes your significant other as well. It is a fact that most frivolous spending comes from people trying to impress their loved ones)
- Keep a Spending Journal Once you start making your own financial decisions and have equipped yourself with some personal finance knowledge via your new book collection you’ll start to realize the importance of budgeting, the difference between a need and a want , and small ways to cut back your consumption to make sure you are saving more and meeting your financial obligations. Before you can stop the money leaks you must first figure out where there are. Begin by writing down where you spend your money daily. Doing this will open your eyes to where most of your money is going. Doing this will give you clear direction of where you are and where you need to go
- Start an Emergency Fund
No matter what your financial situation is right now you MUST begin to put money away on a consistent basis as an emergency fund. Whether you have student loans, high credit card debt, or just feel like you don’t make enough money, not having an emergency fund is like driving a car with no brakes. There is absolutely No reason why you can’t start saving NOW! Start with $1 or $100; the key is to begin the habit so eventually it becomes automatic.
- Become Tax Smart Now a days more and more people are getting in trouble with our dear old uncle Sam so it’s important to understand how taxes work.. Specifically Income Tax. Also, in order to budget your money appropriately you must understand that whatever you receive as a salary is not necessarily what you are going to take home. Understanding how much payroll tax, social security, etc; is being taken out each pay period will give a better baseline to create a budget.
- Start Saving for Retirement
Most young adults believe that retirement is something that they will worry about later as they get older. Retirement is the furthest thing on their mind so they feel that it would be a waste to start planning now. Because of compound interest it is imperative to you start as soon as possible. Compound interest is simply earning interest on your interest plus your original investment, so the sooner your start the more time your money will have to grow. For example: If you were to invest $500 a month at a rate of 11% starting at age 30 until you reached 50 you would earn roughly $400,000. If you invested the same $500 a month at the same rate but ten years earlier at 20 by the time you reached 50 your investment would be worth $1,402,250. In that example you would be giving up $1,000,000 for waiting. Most companies offer company sponsored retirement plans so make sure you take full advantage of those. If they don’t you should walk into your local bank and open up an IRA (Individual Retirement Account)
- Protect Yourself
Comedian Chris Rock once joked that they should start calling insurance “Just in Case” he said “l give a company some money in case something happens. Now, if nothing happens, shouldn’t l get my money back?” While this was a funny joke the price that you pay for this protection is minor compared to what you would have to pay if you were not insured. Make sure you are protecting yourself and your assets at all cost. This includes health insurance, renter’s insurance, disability insurance, and even life insurance if you have people who depend on you. Don’t take this lightly, you are at a pivotal moment in your life and the decisions you make today will have a direct effect on your tomorrow.
The Sooner you become a financial responsible adult the sooner you can spend time living and enjoying life! Those who fail to plan also plans to fail! Don’t lose the game way before you even started.