Top 5 Financial Planning Tips for Young Adults
Saving, Investing, and Managing Money as a Young Adult
Written by Mike Rogers, Founder and President at 360 Financial
While there’s no magic formula to making money and growing your wealth, there are certain things you can do to stack the odds in your favor. Starting at a young age is key because you’re more likely to develop good habits – which can make all the difference in achieving future financial success.
For people in their late teens and twenties, this is the time to learn about finance and start saving for your financial future. The younger you are, the more time your savings and investments have to grow.
This article will give you tips on how to start saving, investing, and managing your money.
TABLE OF CONTENTS
- Why is Financial Planning Important at a Young Age?
- Top 5 Financial Planning Tips for Young Adults
- Earning more at a younger age
- Budgeting and managing your money
- Investing as a young adult
- Saving for a financially-free lifestyle
- Building your wealth and protecting it
- How do you Financial Plan in your 20s?
- Managing an Inheritance
- Financial Advisor for Young Adults
Why is Financial Planning Important at a Young Age?
The most valuable thing in life is time, and when you’re young, you have it. The younger you are, the more time you have to make money. You also have more time to let your money grow through either investments or savings. Also, you have more time to take risks—which increases your rewards—and more time to make financial mistakes and learn from them.
Another reason it’s important to plan financially at a young age: Now is the time that you are building your habits. If you build habits that allow you to succeed financially now, you will carry those with you throughout the rest of your life.
Top 5 Financial Planning Tips for Young Adults
Here are our tips to help you plan financially:
1. Earning more at a younger age
Earning more money is the first step to financial freedom. You can’t save, manage, or invest money if you don’t have it. That’s why it’s so important to start earning more right away. While your mind might jump to side hustles, we urge you to try to work smarter, not harder. After all, no one wants to be constantly overworking themselves.
While side hustles can be great, first, it’s important to find a full-time income that adequately pays you for your skills. It’s important to know your worth by performing market research, so you can ask for enough and not under-sell yourself. Even after you get a job, it may pay off to keep yourself on the market. Wage growth for job switchers is 47% higher than for those who stay in their current job. This is because you have negotiating power when you’re switching jobs.
If you’re struggling to find a full-time job that pays enough, consider becoming self-employed. While it’s not the right path for everyone, it can potentially help you earn more.
2. Budgeting and managing your money
Once you start earning money, you need to budget and manage it — otherwise, you’ll spend it all too fast. You’ve probably heard the saying, “You can’t manage what you don’t measure.” When it comes to your money, that’s especially true.
When you know where all your money is going, it becomes easier to make decisions about how you want to spend and save. The first step is to simply record and analyze how you’re currently spending money, and where you can make changes.
After you analyze where your money is going, now it’s time to create a budget. A budget is a detailed plan for how much money will be coming in and going out over a given period of time.
Remember: A budget is a plan, and it won’t always be executed perfectly. Give yourself grace when you make mistakes, but continue to track your spending so you can avoid those mistakes next month.
3. Investing as a young adult
When you start budgeting and managing your money, you will begin allotting some towards savings. But letting ALL of your savings sit in a bank account isn’t the best way to grow your money. While savings are undoubtedly essential, we also recommend investing a certain percentage of your income monthly.
Investing is more of a risk, but it has a much higher reward than saving. And because you’re young, those risks are easier to take because you usually won’t be needing your money for decades—giving it time to grow again, even if you lose some along the way. You’ll keep your money in your investment account for the long-term and ride out any short-term downdrafts.
Investing your money will likely yield high returns, and it’s best to get started as a young adult.
4. Saving for a financially-free lifestyle
As we mentioned previously, saving is extremely important. Your main goal should be cutting your spending in unnecessary areas and allotting a certain amount of money each month into your savings.
Now is the time to save for financial freedom. This means you’ll have the money you need to live the life you want to live. Ideally, this means you create enough income, so you don’t have to work after you retire.
When you’re old, you won’t want to be spending your days working. You want to work and save now so that you can enjoy your older years in peace. But the best thing about savings, unlike investments, is that if you have an emergency, you can use these funds to help you.
We recommend starting an emergency fund first, which is a savings account that is meant to be used during a crisis. After that, start building a savings fund that you ideally won’t touch until retirement.
5. Building your wealth and protecting it
Building your wealth is a process that involves making, managing, investing, and saving money. You also have to protect your wealth as you grow up from avoidable losses and risks. Protecting your wealth means getting great insurance and working with a financial advisor.
A financial advisor does the following:
- Creates your financial plan
- Manages your investments
- Acts as your stock broker
- Advises and arranges insurance coverage
- Strategizes estate planning
- Makes financial decisions
- Executes your financial plan
All of which can take stress and tasks off your shoulders. Plus, a financial advisor is an expert who can get you better results than if you manage your money on your own.
How To Do a Financial Plan in Your 20s
When you create a financial plan, whether with a financial advisor or on your own, there is a process to follow. Here are the steps:
- Set your financial goals
- Understand what your current financial situation is
- Analyze your current course of action
- Research financial strategies to help you reach your goals
- Build financial strategies, including alternatives, so you have options
- Choose your financial plan
- Implement your financial plan
- Monitor progress
- Do research to update your current plan to meet your goals
However, when you work with a financial advisor, they will take on the majority of the grunt work, help you make decisions, and monitor your progress.
Managing an Inheritance
With more money comes more responsibility. While you have a great opportunity to build upon your wealth by managing your inheritance properly, there’s also a great risk of overspending and causing your inheritance to vanish quickly.
If you have received an inheritance, we highly recommend working with a financial advisor. They can help you properly invest your money so that it grows.
Financial Advisor for Young Adults
The prospect of working with a financial advisor may seem intimidating, but it really isn’t. The important thing to remember is that a good financial advisor wants to help YOU succeed and meet your financial goals. Many advisors work with young adults, and most have pricing that scales with you.
Overall, when you’re looking for a financial advisor, it’s essential to find someone you trust. You want to feel comfortable with them and talk openly and honestly with them. Avoid any advisors who make you feel intimidated.
- The younger you are, the more time you have to earn and build your wealth.
- When you’re young, your habits are important and carry with you for the rest of your life. Now is the time to create financially healthy habits.
- Budget, manage, invest, and save your money.
- If you need expert advice and guidance, work with a financial advisor.
Services 360 Financial Offers All Clients
At 360 Financial, we want you to be confident that you have a financially comfortable future. We’ll help you create a plan, execute it, and monitor your progress so that you can be financially free in the future.
About the Author
Mike Rogers is the founder and president of Minnesota-based wealth management firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This unique, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.
In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.