There is an inexplicable feeling of excitement and pride upon getting your first paycheck, and it makes you want to use that money to celebrate or splurge. But before you do so, it’s important to think about how a one-day shopping spree can affect not just your current budget, but also your financial health in the long run.
Various studies and surveys show that 62 percent of people under 30 are experiencing financial instability. Young adults can easily avoid being a part of that statistic through practicing proper money management early.
If you’re a young adult who’s just starting out in life, here are 10 financial rules to help you manage your finances better.
1. Do your homework.
Personal finance is not a subject taught in school, but it’s something that you should read up on and study. When you learn about proper money management, you will know how to make wise financial decisions and what money traps to avoid.
2. Pay yourself first.
Make it a priority to pay yourself first each time you receive a paycheck. Experts advise saving at least 10 percent of your income and putting it in a separate savings account.
It’s important to note that your savings should be the first portion taken from your salary and not what’s left after expenses and payables. Remember, saving is the key to building your wealth and being financially fit, and that’s something you need to prioritize.
3. Create a budget.
Having a budget is not about restricting you from spending your money; it’s about knowing your financial priorities and maximizing your income.
When you create your budget, list down all your needs, which are necessary things that you need to spend on such as food, utilities, transportation, and rent. Allot an amount for each. Likewise, set an amount for your “wants”. This amount can be used for luxuries such as dining out or shopping.
When you create a budget, keep it realistic and allow room for small adjustments so that you can actually stick to it.
4. Track your expenses.
Do you sometimes feel like you’re earning less than what you spend? Have you ever wondered why you’re always on short on cash?
Make it a habit to account for each dollar you own by tracking your expenses. This lets you know where your money goes. You can begin by listing each expense you have each day, no matter how big or small. That’s how you will see where your overspending and in what ways you can cut down. You’ll be surprised at how small splurges can add up and costs so much overtime.
5. Build an emergency fund.
Apart from a savings account, you also need to build up a separate account for the rainy days or emergencies. Experts say that your emergency fund should be at least three months’ worth of your living expenses.
6. Start saving for retirement.
When you’re young, active and on-the-go, it’s hard to think of growing older. However, it’s important to start saving your golden years at an early age. Remember, there are loans for almost everything but none for retirement.
Most employers offer 401(k) plans and even offer match contributions, meaning they will fully or partially match what you put in. It’s free money that you wouldn’t want to pass up.
If you are self-employed, you can start saving for retirement through an Individual Retirement Account or IRA.
7. Take Care of your Health
Staying in shape is probably one of the strongest strategies in boosting your savings. When you’re healthy, you have the ability to earn. You are also saving yourself from hundreds or even thousands of dollars worth of medical expenses.
Eating a balanced diet, staying physically fit, and getting enough hours of sleep are some of the fool-proof ways of staying in shape. Living a healthy lifestyle may take effort, but the rewards are worth even more.
8. Pay off debt.
Part of financial freedom is being debt-free. If you owe money, whether in the form of student loans or credit card bills, you need to start paying them off. Bills will not simply go away just because you choose to ignore them. As early as now, get your finances in order by managing your debt. Paying them off as soon as possible not just saves you from trouble; it also spares you from shedding more dollars for interest and penalty fees.
9. Get insured
Insurance policies are risk management products designed to protect you from financial losses due to unforeseen events.
At your age, it’s important to get protected under health insurance. Anyone can get sick, and a trip to the emergency room can be expensive. Health insurance protects you from that. Meanwhile, you should also consider getting disability insurance. This policy will serve as your income replacement should you become unable to work due to illness or injury. Renter’s insurance is also something that you should look into. This protects your belongings from burglary or fire.
10. Learn the art of delayed gratification.
Self-control is vital to proper money management. Being frugal is not about depriving yourself from life’s luxuries, it’s about learning to enjoy your money without ruining your budget or overspending. So instead of swiping that credit card or blowing a huge portion of this month’s paycheck on an expensive item, why not save a portion of your income until you have enough to afford it? This way, your other expenses will not be compromised and you will not end up overspending or being in debt.
People work for money, but when you learn how to manage your finances, you are making money work for you. As you kickoff your career, remember these ten financial rules to maximize your income and use it to your advantage.
