Branching out on your own is an exciting life stage for many young adults, but one that carries with it a great deal of responsibility, particularly as it relates to finances.
A study from WSFS Bank of 2,005 Americans between ages 18-40 found that when it comes to financial literacy, 61% of respondents agreed that most of what they’ve learned about finance was through osmosis, with 75% of men agreeing compared to 49% of women.
This financial literacy gap can present quite a few challenges as you mature into adulthood and bare a larger responsibility for your personal finances.
Here are some tips to help you gain financial confidence and build important money management skills.
Managing Your Finances
Whether you’re starting or continuing your college education, or just secured your first apartment, early adulthood brings with it quite a few financial milestones that may also cause some sticker shock.
To help prepare for some of these large purchases that likely await, start by taking a holistic look at your current financial situation and develop a budget and plan for how you’ll achieve both your short- and long-term goals.
There are an abundance of budgeting techniques out there, such as the 50/20/30 rule, where 50 percent of your income is spent on necessities such as housing, 20 percent is put in savings and 30 percent used for lifestyle choices.
There is not one-size-fits-all budgeting technique. The important thing is to find what works best for your unique situation and stick to it.
If you just started your first full-time job or are a full-time student with a “work-study” job, it can be a bit overwhelming to try and save when balancing your pay with rent, tuition, a car or other needed purchases.
Don’t be afraid to start small with your savings and continue to build on how much you set aside as time rolls on – every bit makes a difference in the long-run.
Build Your Credit Responsibly
Many young adults find themselves facing large financial burdens and turn to credit or loans to help. While taking out a loan or opening up a credit card is not a bad thing, it is important to only utilize credit responsibly.
The loans and credit cards you qualify for in early adulthood are likely to carry with them a higher interest rate as you work to build and improve your credit score. Your credit score can impact your financial goals, so it is important to understand what effects your score and only use credit when necessary.
It’s important to try to only borrow money for life-improving events such as your education, a car, house or business.
If you’re purchasing something using credit or taking out a loan, calculate what the true total cost will be if you do not pay off the purchase immediately, and ask yourself if you really need it.
Plan for Your Future
It’s never too early to start planning for your long-term future. Whether you’re looking to buy your first home in a few years or want to save for retirement, it is important to set financial goals and then create a roadmap of how you will reach those milestones within a set timeframe.
Taking advantage of compound interest from a young age can make a huge difference in the long-run. If your employer matches 401(k) contributions, try to contribute enough to max out the amount they will match.
If you don’t currently have the option to contribute to an employer-sponsored plan, consider opening a money market or IRA to help save toward your long-term goals. Setting up an auto-deduction from your paycheck can help build these savings and you’re less likely to miss the money if you don’t “see it.”
If you feel you need more help with creating a financial roadmap to reach your goals, consider setting up an appointment to speak with someone at your bank or look into the abundance of resources online, such as interactive tools.
Young adulthood comes with a number of significant life milestones. With the right financial skills, you can set yourself on a course to achieve both your short- and long-term goals.
Helping you boost your financial intelligence.
Read our financial resources from your friends at WSFS.