Foundational Financial Planning Tips for Young Adults

three young adults sitting at a table on a computer drinking coffee and talking or studying

Unfortunately, financial savviness isn’t always common among young adults these days. This likely comes as no surprise since economics is not a high priority in most high school curriculums, meaning many young people enter adulthood with very little knowledge and experience in money management, investing, and avoiding debt.

Besides helping you avoid general money problems and opening up more opportunities, learning to build a strong financial foundation as a young person means you have more time for your savings and investments to grow. Here are some tried-and-true strategies to embrace in your 20s and 30s, courtesy of Reverse Mortgage Loan Advisors.

1. Build Up Your Savings       

“Paying yourself first“ is one of the most critical principles to keep in mind as you navigate finances. Essentially, it means saving money for unexpected expenses and building financial stability for the future. The more savings you have, the more protected you’ll be from financial trouble and the more secure you’ll feel about life in general.

You have many options when it comes to building your savings. You can take the traditional route of keeping a cash jar or opening a standard savings account, both of which will be secure and leave your funds accessible at all times. Or, you could open a money market account, a high-yield savings account, or a short-term certificate of deposit (CD) to earn interest on your contributions.

2. Learn How to Calculate the Value of Your Home and Assets

As a young adult, you likely don’t have too many assets to your name unless you’ve inherited them. And that means that now is the perfect time to learn the art of calculating your assets; as you build wealth, this skill will help you make crucial decisions on your financial journey.

For example, If you own a home, you can get an estimate on real estate values by utilizing a home value estimator, which uses local real estate market data. Keep in mind that while this tool can give you an idea how much your home is worth, it’s best that you get your home appraised for the most accurate value.

3. Think About Retirement    

It’s never too early to start saving for retirement. Take time to learn about compound interest, and you’ll have all the motivation you need to launch your retirement fund. Compound interest is essentially interest on top of interest, meaning that you earn interest on whatever money you put in as well as all white the bank pays you for holding your funds.

In other words, the longer interest compounds, the more money you have. So, the earlier you start, the wealthier you’ll be. If your employer provides 401(k) plans, stock options, or other investment opportunities, take advantage of all of them. And if they offer to match your 401(k) contributions, max out your contributions. Further, speak with your company to find out what other estate planning benefits they offer, such as life insurance and pension plans.

4. Learn the Art of Budgeting     

This might be the most fundamental financial tip on the list. Learning how to budget will allow you to know and control where every dollar goes. Budgeting effectively will help you avoid your expenses exceeding your income, and it will help you track your spending in everyday life.

You might be shocked by how quickly those daily lattes and takeout meals add up. Creating a budget will bring transparency to your finances and help you make wise decisions that benefit you in the short term and long term. You may not be able to do much about some of your fixed expenses (e.g., rent, utilities, student loans), but there are likely many variable expenses you can reduce or eliminate to improve your financial situation.

5. Stay Organized       

Besides learning how to create and maintain a monthly budget, you also want to keep all of your important documents organized. This includes things like your will, property deeds, and insurance policies. You could keep these documents in a fireproof case or digitize and store them on a secure platform. Also, when working with multiple digital documents, a free PDF merger is a great option for reducing headaches and keeping all your important files in one location.

6. Use Cash     

Self-control is crucial when it comes to finances, and one of the simplest ways to practice self-control is to use cash over credit. If you want something, wait until you’ve saved enough money to buy it outright. Credit card debt impacts adults in every age bracket, and it can significantly harm your quality of life and hold you back from opportunities.

That’s not to say that credit cards are entirely useless. You can earn rewards from specific cards and build your credit score by making payments on time. The key is to never depend on credit cards but only to use them to your advantage.

7. Invest in Your Health     

Health insurance is not cheap, but it will save you a lot more money in the long run in the event that you have to pay for an ER visit. We’re talking thousands of dollars for a broken bone or a simple scan! Start researching your health insurance options today, and adjust your budget accordingly.

If your employer is offering retirement benefits, they’re probably offering a comprehensive health insurance policy as well. If so, take advantage of the opportunity and ask your boss about opening a health savings account (HSA). If you must purchase insurance on your own, spend plenty of time researching different marketplaces and providers until you find a plan that meets your needs.

Conclusion

If you’re uncomfortable with your current level of personal finance knowledge and skills, start learning as much as possible. Learning to save, spend, and invest your money will do wonders for your quality of life and help you sidestep many financial challenges on your journey.

But don’t stop here. Keep researching how to avoid debt, maximize your investments, establish an estate plan, calculate the value of your home and assets, prepare for retirement, and develop an overall financial plan that allows you to rest easy at night!

Author; Jesse Clark

Reverse Mortgage Loan Advisors was designed to educate the public about the FHA insured Home Equity Conversion Mortgage, AKA, a reverse mortgage in layman’s terms. If you have any questions, please email Info@ReverseMortgageLoanAdvisors.com.