You are never too young to take responsibility for your finances. However, as a young adult in your twenties or early thirties, it is vitally important that you start taking responsibility for your finances. Financial planning as a young adult can have a positive impact on your entire life.
Planning Tip #1: Start Tracking Your Money
First, you need to know where you are spending your money. Second, it is essential to understand how you are spending your money — how much of your money is going towards bills, utility, rents, food, and other categories.
To keep track of your money, there are lots of apps you can use. For example, many banks and credit cards track how you spend your money. There are also independent apps you can connect to your bank and credit cards to keep track of your money and how you spend it. Of course, you can also go the old-fashion way and track your money using a paper-based system.
Tracking your money will allow you to see how you spend your money. Tracking your money will allow you to create a more effective budget and will allow you to see what changes you need to make to your spending habits.
Planning Tip #2: Build an Emergency Fund
Second, you are going to want to build an emergency fund right away. An emergency fund is a savings account that you have immediate access to in an emergency. It is a general suggestion to build up your emergency fund so that it equals one month of your salary to start with, and then continue to build it over the years until it equals a year's worth of your salary.
Your emergency fund is designed to be there for those unexpected expenses, so you have money to pay for them and don't have to go into debt to do so. For example, if your water heater fails, you can use the money in your emergency fund to replace it. Or if a family member gets sick and needs to go and see the doctor, you can use your emergency fund. Your emergency fund is designed to provide you with the money necessary to help you when you have an emergency instead of having to put that expense on your credit card or take out a payday loan.
Planning Tip #3: Build Your Retirement Fund
Third, it can be difficult to save for retirement when you are still building up your emergency fund and saving for other everyday expenses. Regardless, it is important to start saving for your retirement. Any money that you put into your retirement fund will grow over time, so the sooner you start to grow this money, the better off you will be in the long term. Compounding interest is powerful, and it essential to start right away.
That is why you will want to start savings, even a small amount, right away. Even saving just a hundred dollars a month in your 20s can make a huge difference when you retire.
If you want to get a firm grip on your life, you need to take control of your financial life. You can do that by tracking what you spend, building an emergency fund, and starting to contribute to a retirement fund. Starting these habits in your 20s can change your life; work with a financial planning and service advisor to help get you on the right path.