According to CNN, some of the financial decisions any young person needs to make before turning 25 include starting to save 20% of their income, wisely managing expenses, and taking care of their health. Here are some essential tips to help you get started on your financial journey.
Keep Track of Your Expenses
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It’s important to calculate your monthly expenses accurately, even if math isn’t your strong suit. Summarize all your income sources to determine your personal income, and then subtract your usual spending. If you have a positive number, congratulations—you’re already saving! If not, it’s time to cut back on some expenses.
If you have trouble remembering what you’ve spent money on, try using credit or debit cards instead of cash. That way, you’ll have a record of your purchases. However, be mindful that it’s easier to overspend when swiping cards.
Save 20% of Your Income
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Tana Gildea, a financial planning expert and author of “The Graduate’s Guide to Money,” recommends that young people save 20% of their income. Half of this amount will cover unexpected expenses, while the other half will go towards long-term goals and retirement.
“Successfully saving 20% of your total income sets a strong foundation for your personal finances,” advises Gildea. If 20% seems unattainable right now, start with a smaller amount and work your way up gradually.
Understand Your Money Mindset
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It’s important to understand your relationship with money, whether you’re a spender or a saver. To improve your financial situation, you need to identify the core reasons behind your spending and saving decisions.
According to Gildea, our relationship with money often stems from our childhood and how our parents handled finances. “It’s crucial to recognize how you view money, what influences your shopping habits, and what factors can help you make more informed spending choices,” she says.
Prioritize Your Health
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Taking care of your health now will save you from potential medical expenses down the road. Ensure you have adequate health insurance and don’t skimp on health-related costs.
Manage Student Debt
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In the US, the average debt for a 2015 college graduate is $35,000. If borrowing is unavoidable, carefully consider your options and choose the loan with the least long-term impact.
Start Retirement Savings
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While you may plan to work until retirement age, starting to save now gives your money more time to grow. Even a small amount saved in your 20s can make a significant difference by the time you reach 60.
Set Goals and Budget Accordingly
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Whether your goals are early retirement, traveling the world, or buying a home, they all require financial planning. Knowing your financial goals will help keep you motivated and focused.
To manage small, unexpected expenses, consider using credit cards for essential items and keeping cash for weekly variable expenses.
Frequently asked questions
According to CNN and financial experts, some key decisions include saving at least 20% of their income, wisely managing expenses, and prioritizing health to avoid future medical costs. Understanding one’s relationship with money and setting financial goals are also crucial steps.
Calculate your monthly personal income by summarizing all sources, then subtract your usual spending. Utilize credit or debit cards to track purchases and make it easier to calculate expenses. If you have a positive number after subtracting, you’re saving; if not, cut back on expenses gradually.
Your relationship with money, whether you’re a spender or a saver, influences your financial decisions. Identifying the core reasons behind your spending and saving habits can help improve your financial situation. According to Tana Gildea, a financial planning expert, recognizing your views on money and shopping influences can lead to more informed spending choices.
In the US, the average debt for a 2015 college graduate is $35,000. Carefully consider borrowing options and choose loans with minimal long-term impact. Starting retirement savings early gives your money more time to grow, even if it’s a small amount. A little saved in your 20s can make a significant difference by the time you reach 60.
Setting financial goals, such as early retirement, traveling, or buying a home, provides motivation and focus. It helps to manage expenses and plan accordingly. For instance, using credit cards for essential items and cash for weekly variable expenses can help with small, unexpected costs.
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