7 Money Management Tips Every Young Person Should Know

Money Management Tips for Young People

Ever wish you could just have a list of tips you need to know to manage your money better?

Well, ask and you shall receive.

In this article you’ll find 7 money management tips every young person should know.

Starting your life as a young and independent adult can be as exhilarating as it is scary. While the idea of independence is exciting, thinking about how you’re going to take care of yourself can be frightening! 

So what do you do to get yourself up-to-speed? Well, the most important thing to do is to develop your money management skills.

Money management is a topic that many want to know more about but have no clue where to start learning. For young adults, this is especially true.

Tip 1 – Budget, budget, budget….until you can’t budget anymore

I cannot stress enough how important it is to have a good budget. Your financial success will be heavily dependent on how well you can budget for your expenses and STICK to that budget. 

A well-defined budget will help you understand how much money you need to earn and also how much money you can spend.

This can be tricky at first because on one hand, you want to make as much money as possible. I mean who wouldn’t? But on the other hand, you need to be aware of, and able to, limit your expenses so they fit within your income level.

Understanding your financial NEEDS will enable you to determine your salary requirements and help you learn to budget at your level of earnings. At the same time, understanding your earnings limit will help you manage your expenses so they won’t exceed those earnings.

Let’s say you’re offered a job paying $40,000 per year. After taxes, insurance, and retirement plan contributions – we’ll discuss that later – you’re looking at about $25,000-27,000 to actually take home. 

If all of your bills, such as housing, utilities, student loans, etc., will cost you more than that $25,000-27,000 annually, you will need to muster up your courage and negotiate a higher salary or look for a different opportunity.

But what if you can’t negotiate a higher salary or can’t find a different opportunity? Well, then you’ll need to reduce your expenses as much as you can.

Now, without developing a budget you wouldn’t know what to expect in terms of monthly expenses. A budget will help you map out your plan of action regarding your spending. 

For more info on creating an easy budget, check out 5 Easy Steps to Creating a Simple Budget.

Tip 2 – Understanding Benefits at Your New Job

Starting a new job can be very exciting.  So exciting, in fact, that you may forget to ask about your benefits. Benefits may include the following:

  • Medical Insurance
  • Dental Insurance
  • Vision Insurance
  • Retirement Accounts
  • Health Savings or Flexible Spending Accounts
  • Bonus structure, eligibility, and payout percentage (if applicable)
  • Time off – including vacation, sick time, personal days, etc.

This is not an exhaustive list, so your company could very well offer these benefits and many others. Make it your business to understand those as well.

Most of these benefits will require you to pay money for them. That being the case, you should factor those costs into your budget. 

Understanding benefits available to you may in fact be one of the most critical of the money management tips every young person shold kn

Tip 3 – Start Investing in YOU early 

This is one area where everyone has the best intentions but many don’t actually follow through with starting at a young age. 

The hard part is, when someone tells you, at 22 years old, that you need to start putting away money for your retirement that won’t happen until you’re 60, it seems like an eternity away. 

Trust me, I get it. 

You think to yourself, “Oh I have time…starting in a few years won’t make that much of a difference.”  Well, guess again. Starting early with your retirement fund contributions will save you a world of hurt and regret down the road.

The illustration below shows how simply investing just 5 years earlier can yield a substantially higher return by the time you reach retirement age. 

Start Saving for Retirement Early

Why would saving sooner rather than later make that much of a difference?  

Well here’s why – compound earnings. Simply explained, compound earnings means your earnings make money for you. 

For example, if you have a $100 balance today with a 10% rate of return, at the end of the month you will have $110 (assuming the interest is compounded monthly).  At the end of the second month, interest will then be calculated based on $110, not just the original $100. 

Once that happens you’ll have $121 to start your third month’s balance. This can go on and on and on. 

As you can see, starting your retirement savings contributions early can make a big difference in the amount of money you can earn over time. 

No matter when you start, however, the most important thing is to START.

Tip 4 – Pick the right accounts to manage your money

At this point, you may be wondering where you should put the money you’re earning and saving. Just as it is important to understand how you’ll earn and save money, it’s equally important to understand where to put it. 

Simply putting all of your funds, regardless of what those funds are, into a regular checking account is an amateur mistake. This is because you won’t always get the maximum benefit for an account that you aren’t using in the most efficient manner.

Here’s a basic example of how you could use different accounts to get the most benefit.

Paycheck – You’ll likely withdraw from this account often and need immediate access to the money. So the best place for the funds is a checking account.

Retirement Savings – These contributions would go into a retirement account such as a 401k/403b or an IRA. 

Regular Savings  – This money will likely be used for immediate emergencies, but you wouldn’t access the money regularly. In that case, the money can sit in a savings account with low fees and low minimum requirements at your financial institution.

Emergency Fund Savings – This will be a much larger balance than your regular savings accounts. Also, you’ll touch this money even less frequently than your other savings accounts. Because the money will likely sit long-term in this account you need to make sure you’re accounting for the time value of money. 

Basically, you need to make sure your money is growing at or faster than the rate of inflation. In that case, you’ll need to consider a high-yield savings account, at a minimum. 

Tip 5 – Understand Loan terms and Credit Card usage

When you’re first starting out, I would caution that your ultimate goal should be to avoid debt at all costs, however, as a realist I know that isn’t always possible. 

What I will say is that making better decisions about debt can be a game-changer down the road. 

First, let’s explore the importance of understanding loan terms. 

This can be critical in your success – or demise – when managing your finances. Loan terms can consist of the interest rate (APR), the length of the loan, the required minimum payment, and payoff requirements, just to name a few.

Beware of promotional offers. They can be exciting, but without the proper understanding of how they work, you could find yourself in MORE debt. 

One way this can happen is if you are offered a Deferred Interest vs. a Zero Interest promotion. The difference could mean owing hundreds or thousands more than you originally thought. 

Ultimately, you always want to be sure to ask what the interest rate is after the 12 months, even if you think you’ll pay the balance off before 12 months. 

Now, let’s get into credit card usage and how misuse can lead to a mound of debt.

Using credit cards, for any reason, requires a great deal of self-control. The idea is to pay your credit card balance in full each month in order to avoid accumulating interest. This, however, is easier said than done for many people. 

The problems arise when credit cards are used to supplement income. This is a disaster waiting to happen. If you don’t have the money currently in your possession, AND you don’t expect to have the money within a month of the purchase, then YOU CANNOT AFFORD THE TRANSACTION.  

I cannot stress this enough. Being able to pay for something with a credit card DOES NOT mean you can afford it.

Much like the loan terms mentioned above, credit card terms can be even more tricky. To start, don’t get trapped in the minimum payment downward spiral. 

Paying only minimum payments means you’ll pay more over time. If you must use a credit card for whatever reason – no judgment – try to get a credit card with a 0% introductory rate and pay the amount off at least one month prior to the expiration of the introductory rate. This will simply help to ensure you will not run out of time with your 0% interest rate. 

If you find that you do not fully understand the terms of your loans or credit cards, ALWAYS, ALWAYS, ALWAYS ask questions until you do. 

For more information about managing credit cards, check out Credit Card Advantages and Disadvantages.

Tip 6 – Understand Credit and Monitor Your Credit Score

Money Management Tips for Good Credit

In a world dominated by electronic transactions and cyber hacks, it’s never been more important to monitor your credit. The need to protect your personal information is crucial. 

Why?

Because in a matter of hours, someone could obtain your personal information and open several accounts in your name. The scary thing is most of the personal information they would need can easily be found online, posted by you! 

Yup, that’s right. You could be putting information on social media that scammers can find and use to steal your identity. 

Think about how easy it would be to find out your mother’s maiden name, your date of birth, and your address online. Sometimes this information is all a hacker needs to obtain credit in your name. Frightening isn’t it? 

So how do you protect yourself from this kind of theft?

The first thing you should do is be careful with your personal information. Protect it the same way you’d protect any of your other possessions.

Would you go park your car at the airport and leave your doors unlocked while you’re on a week-long vacation? Probably not. So why would you post your address online for a party you’re having, then a week later tell everyone about the trip you’re about to take? 

Also, be smart about who you share your data with. If you get a random phone call, from an unknown number, and they ask you to provide your social security number in order to give you information about why they’re calling, you should think twice about doing so. 

Trust me, people are watching and waiting for you to slip up.

Money Management Tips for Every Young Person Should Know

While you can mostly protect yourself by simply making better choices, sometimes things are truly out of your hands. Your information could be compromised because of a data breach at a financial institution you use or with your healthcare provider. 

In cases like this, the best way to protect yourself is to monitor your credit report regularly. Doing so can save you money, time, and financial distress. 

The good thing is you can actually do this for FREE! 

You can get a copy of your credit report, for free, from all three credit bureaus using annualreport.com. In doing so, you can get 1 free report every 12 months from each of the credit bureaus. If you time it right, you could get a report from a different company every 4 months. That way you won’t have to wait a full year to see a new report.

Here’s a list of a few things to monitor on your credit report:

  • New Inquiries – be sure you actually made them
  • New Accounts – make sure they are only accounts you have personally opened
  • Payment History – review for any missed or late payments
  • Credit Card balances – keep your credit utilization low
  • Errors – sometimes companies just report things wrong – you can dispute these.
  • Personal Information – make sure it’s correct

Because everyone’s credit situation can be different, this isn’t a complete list of things to monitor on your credit report, but it’s a start.

The next thing you should know is the score itself – your FICO score. 

Your FICO score is based on all the items mentioned above, and many more, that you should monitor on your credit report. Your score will be used by businesses to determine your creditworthiness in the event you would like to obtain credit.

If you have negative information reported such as late or missed payments, your credit score will go down. Paying your bills on time and keeping your credit card balances down can increase your credit score.

There are many factors that can increase or decrease your credit score, so I won’t go into all of them here. But, starting with the basics can go a long way. 

Financial Literacy Money Management tip

7 – Improve your financial literacy

Finally, the most effective money management tool you can use is financial education. Improving your financial literacy can make all of the tips mentioned above seem like a cakewalk to implement. 

Once you become more financially sound, you’ll start to think through things in ways that make the most financial sense for your situation. The more you know about your personal finances the closer you’ll be to achieving your financial goals. 

The good thing is, it doesn’t have to be complicated or boring. At Wild About Wealth our goal is to get more and more young adults excited about their financial education and show that there’s a path to building generational wealth. 

Summary on Money Management Tips Every Young Person Should know

When you’re young and just starting out, managing your money can seem overwhelming. But it doesn’t have to be. Making a plan for yourself and creating positive money habits early on can be the key to financial freedom. And you can do just that following these 7 money management tips every young person should know.

Always remember, you don’t have to know everything there is to know about personal finances to be successful at managing your money. You simply need to be committed to understanding your individual situation and making a plan to achieve financial success.

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Krystal Norwood-Morales, MBA, CFEI

Krystal is a Certified Financial Education Instructor and founder of Wild About Wealth, LLC. As a financial literacy advocate, she writes posts geared toward helping others improve their financial education and build generational wealth.

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Krystal Norwood-Morales, MBA, CFEI

Personal finance blogger

As a certified financial education instructor and financial literacy advocate, my mission is to teach young adults how to build generational through financial education. So let’s get WILD about WEALTH!

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