In this article, we cover the subject of financial advice for young adults, exploring budgeting, saving, debt management, credit building and the benefits of investing and planning early. You can consider it your comprehensive guide to financial planning for beginners, complete with practical tips to help you take charge of your financial future, no matter where you are starting from.
In your twenties and thirties, life is full of exciting possibilities. But when it comes to managing money and planning for the future, it can feel overwhelming. Whether you’re just starting your career, paying off a student loan, or working out how to save for things to come, navigating your finances can be tricky. The good news is that by taking control now, you can set yourself up for a secure and independent future.
In this article, we cover the subject of financial advice for young adults, exploring budgeting, saving, debt management, credit building and the benefits of investing and planning early. You can consider it your comprehensive guide to financial planning for beginners, complete with practical tips to help you take charge of your financial future, no matter where you are starting from.
The importance of financial independence
The general description of financial independence is having sufficient income, savings or investments to live comfortably and meet all your financial obligations, without having to work.
However, in the context of financial advice for young adults, the concept of financial independence is more about gaining control over your finances, and building a foundation for future financial freedom.
We can look at financial independence as taking the lead with your money, so you can meet your financial obligations, make choices that align with your goals, and have the freedom to pursue the things you love without being held back.
It is about having enough to cover your needs, save for the future and enjoy life, without relying on others or living from payday to payday.
Millennial money management – why start now?
Taking control of your finances in your younger years can have a significant impact on your future.
By building healthy financial habits, avoiding unnecessary debt, and making smart choices early on, you should be better placed to achieve your aspirations.
The earlier you start, the more time you have to benefit from millennial money management in various ways:
The power of compound interest
When you start saving and investing early, it stands to reason that your money has more time to grow. Compound interest allows you to earn interest not only on your initial savings, but also on any interest that may accumulate over time. This way, even small amounts of money you invest early on could potentially grow significantly, ready for when you need it.
Building good financial habits
Starting early with your financial planning means you can establish healthy financial habits that will serve you well for life. Whether it’s budgeting, saving or just being mindful of spending, the habits you form in your 20s can help set you up for success in the future, whilst avoiding pitfalls.
As these habits become second nature, it becomes easier to manage your finances as you navigate the different stages of life.
Achieving financial freedom
An early start on your path to financial freedom does not necessarily mean you will stop working early. It does, however, mean that you will have more freedom to make meaningful choices.
Whether you wish to change career, start a business or take time out for work, perhaps to start a family or to simply reconsider your life, a solid financial foundation will provide the flexibility to pursue opportunities without financial constraints holding you back. In other words, by planning now, you can give yourself more options later.
Budgeting: Creating a foundation for success
Creating and sticking to a budget is the foundation of financial stability. It helps you understand where your money is going, and ensures you are not spending more than you earn.
A budget gives you a clear picture of your finances. It allows you to allocate money for essentials, enjoy life within your means, and save for future goals. Without a budget, it can be easy to lose track and fall into debt.
Tip: Follow the 50/30/20 rule
This simple rule can help you stay on top of your spending:
50% for needs: Allocate half your income to essentials such as mortgage or rent, utilities, groceries and transport.
30% for wants: Use this for discretionary spending, such as going out for meals, holidays, leisure and hobbies.
20% for savings and debts: Allow this for emergencies and paying off debts. If you are debt-free, use this portion to grow your savings or investments, and to keep your emergency fund topped up.
Tips for sticking to your budget
- Use budgeting apps or spreadsheets to monitor your spending
- Set up a regular automated payment to your savings account each month
- Review your budget regularly to make sure it still fits your needs and goals
Budgeting may seem a bit restrictive when you first get started, but it is a fundamental of millennial money management. By controlling your finances, you will feel better prepared to handle whatever comes your way.
Saving: Building your financial safety net
Before anything else, focus on building an emergency fund. Aim to save 3-6 months’ worth of living expenses. This safety net will help you navigate unexpected events such as sudden unemployment or unplanned repairs or bills, providing peace of mind when the pressure is on.
Once you have your emergency fund in place, start saving for specific goals. For things like holidays or large purchases, you are usually better advised to set aside money in easily accessible accounts.
For longer term goals, such as buying a house, funding education or retiring, you may consider putting your savings into higher-yield vehicles such as investments, ISAs or pension funds. The aim is to see your money grow over time, whilst still being available when you need it.
It is important that any decisions around long term savings and investments are made under the guidance of a specialist financial planner who will professionally tailor a plan to suit your individual situation and goals.
Debt Management: Tackling what you owe
An important element of financial planning for beginners - or for anyone - is tackling debt. These tips will help you get a handle on what you owe, and how to deal with it:
Prioritise high-interest debt: Focus on paying off high-interest debts first, such as credit cards, overdrafts or payday loans. These debts can quickly spiral, so getting them paid off quickly to minimise the interest paid is often a wise move.
Avoid new debt: While repaying debt, try to avoid taking on new loans or making unnecessary credit card purchases where possible. Stick to your budget, and use cash or debit cards to stay within your means.
Consolidate and refinance: If you have multiple debts, it may be worth exploring consolidating or refinancing options. If you can secure a lower interest rate across all your debts, it could make them easier to manage. However, this option is not suitable for everyone, and it is important to consider that it will likely prolong your debt repayment period. Again, always take professional advice before making critical financial decisions.
Investing Early: The power of time
When looking at personal finance tips for 20-somethings, you will often come across advice on ‘investing early’. This is because the power of compound interest means the earlier you start, the more your investments will benefit.
You do not necessarily need a large sum to begin investing. Even smaller, regular contributions can grow over time.
A specialist savings and investments planner will often speak of the importance of diversifying your investments. This means spreading your money across a variety of assets in order to protect it from market volatility, and to potentially increase your chances of steady returns.
Investing is not about fast gains. It is about building wealth over time. You should therefore focus on long-term growth, remain patient, and avoid reacting to short-term market fluctuations. The longer your investments have to grow, the greater potential for your future financial security.
Building Credit: Your key to future financial flexibility
A good credit score opens doors to better financial opportunities, such as lower interest rates on mortgages and loans. It shows lenders that you are responsible with money, making it easier to borrow when you need to.
Here are three ways to build credit as part of your millennial money management plan:
- Start with a credit card: Used wisely, a credit card can be a good way to build credit. Be sure to pay your balance in full each month to avoid interest and demonstrate positive credit behaviour.
- Always pay on time: Always pay your bills on time. Late payments can harm your credit score, so set up reminders or automate payments to stay on track.
- Keep balances low: Try to use only a small amount of your available credit. This will help improve your credit use ratio, which can influence your credit score.
The bigger picture: Financial goals and future planning
Establishing both short-term and long-term financial goals will help you stay focused and motivated.
Short-term goals might include saving for a holiday or car, whilst long-term goals could be buying a home or funding a child’s education.
Clear goals provide direction, and help you make informed rather than emotional financial decisions.
Retirement planning starts now!
Retirement may seem a long way off when looking at millennial money management. But it is never too early to start planning for your life after work. The earlier you start, the more time your savings and investments have to grow.
Starting early can lead to a more comfortable retirement, and may allow you to take advantage of compound interest and potential tax benefits.
Financial advice for young adults: Helping you work towards your life goals
Financial independence may seem like a distant dream, but by taking small, consistent steps now, and by engaging the right professional advice, you can set yourself up for a more secure future.
Not only will professionally-guided financial planning support you in making informed decisions, it could also help you navigate the uncertainties of life, and maximise your spending power.
Remember that financial planning is not a one-time task. It is an ongoing process; a journey that will take twists and turns as your life changes direction, or unexpected events crop up.
This is why it is beneficial to work with a financial planner who supports you for the long term, adjusting your roadmap and managing your investments as your life evolves.
At Finli, this is how we work. We focus on your life and story as a priority, and then work out how we can help guide your finances to meet your goals.
Why not let us help you begin your financial planning journey? Contact us today to get the ball rolling towards your ultimate goal of financial freedom. It is never too early to get started!
