18 Things Every Young Adult Needs to Know About Money
My favorite memory as a kid? Not having to pay bills. Period. Who knew being an adult was tough? It seems like as soon as you wake up and stretch, you already owe someone $150. It’s almost as if every corner you turn (or mail received) is a bill waiting on you.
Let’s not even bring up navigating our finances even though there are a million and one apps #Nightmare
No worries though. I gotchu!
I’m here to give you a rundown of the things you need to know to help you better manage your money.
Let’s get right into it; we have a lot to cover 🙂
18 Things Every Young Adult Needs to Know About Money
1. The importance of saving:
You’re reading this post because you want to build wealth. You understand that wealth will give you options, choices and most importantly, the freedom to live the life that you deserve. So here’s the secret I’m going to give you for free. I know, who’s better than me 🙂
That’s it! That’s the secret; save your money.
Now, of course, you can’t save your way to wealth. You’ll have to save AND invest but saving your money is the first step because it is the foundation of wealth building.
If you struggle to save, I know how you feel. I used to feel the same way a few years ago. I would spend, try to save, actually put the money away but go right back and dip into my saving until I found out how to solve this problem
2. How much you really owe:
Do you have debt? Credit cards, personal loans, student loans? Well, you’re not alone. Millions of Americans have debt too. The best thing you can do is to get a grip on your debt so they don’t spiral out of control and leave you feeling overwhelmed.
You need to know who you owe, how much exactly you owe, where to send payments to and a contact number should things really go bad for you and you need assistance with your debt.
3. How your student loans are set up:
You know, there’s debt and then there’s student loan debt. For some reason, I can’t seem to put student loan debt in the same category as say a car loan, credit card or personal loan.
I consider student loan debt as a beast of its own because it can be so……complicated. For instance, it is the only loan that shows up as 8-10 different subcategories on your credit report *face palm*
You need to know what kind of student loan you have; subsidized or unsubsidized? What repayment plan you’re under; standard, graduated, extended, income-based? Are your student loans private or federal?
What are your consolidation or deferment options if you needed?
4. How to budget:
No word in personal finance strikes more fear than the word “budgeting”. However, if you plan on being and staying wealthy, you need to create a budget.
Heck, wealthy people do have budgets and so should you! Once you start budgeting, you’ll see there’s nothing to be afraid of : Budgeting is simply you telling your money where to go.
I’ve created a pretty simple guideline to set up your budget:
Your Budget Guide:
50% Essentials -Housing, Food, Utilities, etc
15% Saving- Emergencies, Starting a business, investing, etc
15% Debt – Student loans, credit cards, car loan, etc
20% Non Essentials – Self-care, travel, personal development, etc
If more than 15% of your income is going toward debt, which is (definitely) affecting your ability to save, you need to adjust your non-essential spending.
Note: This budget assumes you’re already taking advantage of your company-sponsored 401k especially if your employer offers a match.
5. How to manage your bills:
This is closely related to budgeting but isn’t quite. Managing your money is closely related to your credit You could create your budget, save and maybe invest but are you sending out all your bills on time?
Do you wait until the last minute to pay your bills? Do you pay your bills over the phone as a result of again waiting until the last minute thereby incurring additional charges?
Are you overdrawing your checking account because? Americans paid 34 billion (yes, billion) in overdraft fees in 2017.
Money management is a skill every young adult needs to learn.
6. What a credit report is:
Credit is simply giving you the opportunity to purchase something today with the promise that you’ll pay for it tomorrow. Your credit report shows how good (or bad) you are at keeping up with said promise.
A credit report is a record of your past borrowing and repaying including information about late payments gathered by the three major credit bureaus: Equifax, Transunion, Experian.
These credit bureaus collect credit and financial information about you and compile it into a report to produce a credit score. The scores range from 300 to 850 with a higher score showing you to be more financially responsible.
7. What makes up your credit score:
Think of your score like a pie chart. Here is how your credit score is calculated.
– Paying your bills on time. (35%)
– Credit Capacity (30%)
– Credit length (15%)
– Mix of credit (10%)
– Accumulation (10%)
As you can see, paying your bills on time and credit capacity carries the most weight at 35% and 30% respectively.
If you can pay all your bills and keep your credit card balance to under 30% of your limit, your credit score will remain in the high 700s.
8. How to properly use a credit card:
You know, there are some “experts” who believe in telling their audience to cut up all their credit cards.
I don’t believe in that; I’m very pro credit card because it has helped me build wealth. I believe in learning how to properly use a credit card to your advantage.
If you’re reading this, you’re most likely not at the point where you can completely forgo using a credit card anyway.
Credit cards will teach you discipline; learn how to use and master your credit cards.
9. What multiple streams of income are and how to map out your strategy to get them:
The income you get from your job is considered “active income” because it is your primary source of income.
You’re trading most of your time when you work a 9-5 job for money which means you have to show up or else you don’t get paid.
Now here’s another secret I’m giving you- at no cost.
Active income is good – particularly if you’re a high-income earner but you need passive income to build wealth.
What is passive income?
The most basic definition of passive income is, – the ability to make money while you sleep or on a vacation. Passive income essentially doesn’t require your time or presence.
Okay, let me not get ahead of myself.
At first, you will spend a lot of time creating your passive income but as you gain more experience, you’ll learn to leverage systems that allow you to spend less time. Think of it as working hard at first and then working smart.
Some ideas for passive income include; real estate, stocks, and starting your own business.
The bottom line: to earn passive income, you have to learn how to put your active income to work.
10. How to say no to borrowers:
You know, there are many (unserious) people who do not have their priorities straight.
They would rather you work and use your hard-earned money to take care of them while they leave their bills unpaid, catch flights every week while taking pictures for the gram.
Don’t get me wrong there is helping a friend who is in a bind every now and then; but there’s also enabling a full-blown adult to become dependent on you.
It is your duty to know the difference and be able to say no when the time comes.
11. How to say no to people who ask to cosign a loan:
This is closely related to No 9 above. If you’re ready to ruin a relationship of any kind; family, friend’s, boyfriend/girlfriend, then go right ahead and co-sign. In many cases, cosigning a loan with anyone never ends well.
The best thing you can do for anyone looking to get a co-signer for a loan is to direct them to resources that can help them get their finances in order.
12. How to negotiate for a discount:
Some of your monthly expenses are totally negotiable so set aside time in the year to review them. You could decide to go with monthly or quarterly March 31, June 30, Sept 30 and December 30
Some of the bills you can negotiate are; cable, credit card interest rates, insurance of any kind, phone bill.
Remember, some jobs also provide discounts with the monthly bills mentioned above. Be sure to use all your resources.
13. How best to use your tax refund:
You know, tax season is right around the corner and it is super important you have a plan for your money – if you’re getting a refund. If you don’t tell your money where to go, it quietly leaves you.
Here are some great ideas for your tax refund this year:
a. Pay down/off your credit card depending on the size of your refund
b. Start that business you’ve always talked about
c. Pay for courses that enrich you – such as investment or stock courses
d. Buy real estate- it’s the gift that keeps on giving
e. Purchase some stocks
f. Set up a 529 plan for your kids – if you have them
g. Travel to someplace new – as long as you’re not drowning in debt
14. The basics of stock investing:
The one myth most people have about stocks is that it’s complicated.
Okay, is it a little complicated if you don’t have a clue at all? Yes. However, in the words of Marie Forleo, it is figureoutable. You simply have to invest a little time and money in your education.
Listen, if you can analyze zodiac signs, you can learn to analyze stocks. When it comes to stocks, you first decide what kind of investor you are:
Long term investor.
Knowing the kind of investor you are will largely shape what type of stocks you buy.
15. The difference between a 401k and Roth IRA:
A 401k is a tax shelter account you make a contribution in to for retirement with pre-tax money. On the other hand, a Roth IRA is a tax shelter account that allows you to put money aside for retirement using post-tax money.
Don’t get confused. Just understand one is before tax (401k) and the other is after-tax (Roth IRA) money.
The most important advantage of the Roth IRA is that you’ve already been taxed now. You won’t be taxed in the future when you make a withdrawal.
This year, the maximum contribution is $6,000 for a Roth IRA while the maximum contribution for the 401k is $19,500. Most 401ks are usually employers sponsored and in some cases, your employers may offer a match.
Take advantage if there’s a match.
16. How to buy a home even if you’re not looking to buy just yet:
It is absolutely necessary you educate yourself first before purchasing a home. Owning a home is a major responsibility.
There are so many hidden costs associated with homeownership that many first time home buyers realized after their purchase that they were unprepared and started experiencing buyer’s remorse.
The last thing you want to do is buy too much house or buy a property and be house poor.
17. How to ask for a deferment on your student loans or any debt in general without defaulting:
You know, for most of us, we are one accident or bad situation away from defaulting on a debt owed. The initial reaction might be to ignore your bills because you feel overwhelmed with everything going on.
Don’t do it. It will only get worse.
Call the customer service representative of your creditor and explain your situation. Most are willing to work out a payment plan with you so it doesn’t affect your credit report.
If you have a federal student loan you can defer payment until you get back on your feet.
18. How to reduce your tax burden:
I have over 200 credits on my transcripts. They come from an Associate in Paralegal, a Bachelor’s degree in Professional Communications and a Masters of Science in Accounting.
However, the most important class I ever signed up for while I was pursuing my masters was Federal Income tax for individuals because that’s as real as it gets.
If you have some time and money; sign up for the class at the local community college in your area. You will walk away with an understanding of how the U.S tax system works and the loopholes afforded to everyone who understands the system.
Have I left anything else out? Start the conversation by letting me know in the comment section. 2020 is the year to make
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