Financial Advice For Young Adults

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As you turn 18 years old, adulthood is upon you. Freedom to do as you please can make some people giddy, but young adults are starting the best period for earning wealth. From lucrative jobs to high savings potential, young adults can create a solid nest egg for their entire lives. However, we all know most young adults do not take finances as seriously as they should. In fact, the average retirement savings for those 55 and older is a mere $130,000.  This is due entirely because young people decide not to save until it is too late. Pay attention to the following advice for young adults and stay ahead of the herd.

Invest In Financial Education
For most young adults, high school and college don’t offer mandatory financial education, such as saving money for retirement or emergencies. You may follow the habits of your parents, mimicking their spending and savings habits. Although this can be beneficial for young adults with financially savvy parents, other people continue on the same financial path of poverty and excessive debt. Seek out financial management courses at a local community college, for example. Before you start investing, applying for a credit card or taking out loans, it’s critical to know what you are committing to in the financial world. High dollar amounts can blind people to the payback costs in the future. Make sure to read up on the “Top 10 Most Influential Investing Blogs.”

Invest Now, Spend Later
One of the best ways to build wealth is through compound interest. Whether you have a money market account or a full-scale 401(k), long-term investing gives you exponential growth. An investment account with 5 percent interest on $10,000, for example, gives you $10,500 at the end of a calendar year. The next year, that 5 percent is applied to the $10,500, giving you $11,025 at the end of the year. If you continue to let the amount sit and accrue interest, you are making the money work for you. Of all the financial advice, this is one strategy that works for everyone, regardless of the deposit amount.

College Degrees Increase Earning Potential
Although you may have a lucrative job offer right out of high school, it’s a better idea to start a college career to gain that coveted degree. A four-year degree shows that you have commitment to your favorite subject and have mastered the information. College graduates have more chances at higher-salary positions, along with movement up the corporate ladder. There is also less pressure on a personal level because spouses, children and mortgages aren’t part of the financial picture. It’s much harder to pursue a higher degree when you are older because of other obligations. Increase your earning potential with a college degree, or even a Master’s degree, to gain access to fascinating jobs that pay well.

Credit Cards Aren’t Free Money
Young adults are practically drowned in credit card offers. With a limited credit history, you may be inclined to apply and use several credit cards. Although it’s necessary to build your credit score, use the cards conservatively. Don’t spend more than you make, for instance. You want to be able to pay off the card each month to avoid interest charges. You’ll find that even a small balance accrues interest quickly. Only apply for one or two cards that aren’t limited to one business alone. Slowly build your credit by avoiding late payments and high interest accrual rates. You don’t want to start your adult life out with high debt, forcing you to compromise on other purchases, from school tuition to a reliable car for work use.

Go Easy On Student Loans
When entering college, there’s a large temptation to take out student loans larger than needed for the school year. Avoid taking out extra money, if possible. Although you don’t have to pay back the loans until after graduation, those loans add up through the years. You need to weigh your potential after-college career pay scale with your loan amount. If you plan on being a doctor, large student loan amounts could be paid off easily, but a potential government social worker position shouldn’t take out a lot of loans because their salary cannot support such huge payback terms.

Start An Emergency Fund
Even if you’re a carefree college student, start an emergency fund immediately. Medical problems and accidents can occur at any time. With an ample emergency fund, you can cover personal expenses if you can’t work or go to school. As you gain more financial responsibilities, such as an apartment rental or car payment, add more to the emergency fund. Ideally, you want 6 to 12 months of income in the bank for a safe cushion from personal emergencies. You don’t have to rely on family, friends or a credit card to pay for necessities after a car accident, for instance.

Pay Attention To Investments
Whether you have an IRA, 401(k) or pension as you begin working, don’t allow the investment to just sit idle. Pay attention to monthly or quarterly statements regarding losses and gains. As a young adult, you can have more risk with stocks, giving you potentially higher returns over the years. As you age, the ratio of low-risk bonds to stocks should rise. You want more investment safety as you work closer to retirement. Ideally, you risk more when you’re young to reap the benefits of time to recover from any significant losses. Active investing only helps you achieve a worthwhile retirement at a younger age.

Check Credit History Frequently
Your credit history tells a story about your financial responsibility throughout life. Each year, access your free credit report to verify that all information is correct. Any incorrect statements need to be fixed to increase your credit score. Employers and financial lenders access this history to determine your interest rate and possible lending amount. You can’t buy a house or car with a poor credit history. As a young adult, stay on top of utility bill and car payments, along with any credit cards. You’ll see your credit score soar as you benefit from future low interest rates.

Many young adults are kept in the dark about their future financial situation. Take action to find out about saving and investing. Your future and family’s well-being are in your hands.

Are you ready to turn your portfolio of uncertainty into a reliable cash flow machine?

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