A class titled “Finance for Young Adults” usually isn’t part of a high school curriculum—an unfortunate oversight that leaves many young people clueless about how to manage their money, apply for credit, and stay out of debt. Although some progress has been made—23 U.S. states required a personal finance course and 25 required an economics course for high school graduation in 2022—there are still large knowledge gaps in this age group.
Basic economic and financial education in high schools should help at least a segment of the next generation, but young adults in the crucial post-high school years also need to master core lessons about money. Learn more about how to start managing your money from the very beginning of your financial life.
Essential Finance Tips for Young Adults
The sooner you start learning to manage your money, the better your chance of financial success will be throughout your life. If you are just starting out, there are eight steps you can take now to protect your financial health, start saving, and build wealth throughout your life.
Practice Self-Control: Pay With Cash, Not Credit
If you’re lucky, your parents taught you self-control when you were a kid. If not, keep in mind that the sooner you learn the essential life skill of delaying gratification, the sooner you’ll keep your personal finances in order as a matter of habit.
One of the most important ways to exercise self-control with your finances is also very simple. If you wait until you’ve saved the money for whatever it is you need, then you can put all everyday purchases on a debit card instead of a credit card. A debit card deducts the money from your checking account immediately (with no additional fees), but a credit card—unless you can afford to pay off the balance in full every month—is actually a high-interest loan.
Beware of Bad Advice: Educate Yourself
If you don’t learn to manage your money, then other people will find ways to mismanage it for you. Some of these people could have bad intentions, like unscrupulous financial planners. Others may be well-meaning, but not fully informed about your circumstances, like relatives who make blanket recommendations about the importance of owning your own house—even though the only way you could afford to buy right now would be taking on a risky adjustable-rate mortgage.
Instead of relying on random advice from unqualified people, take charge of your own financial future and read a few basic books on personal finance. Once you’re armed with knowledge, don’t let anyone get you off track—whether it’s a significant other who siphons off your bank account or friends who want you to go out and blow tons of money with them every weekend.
Know Where Your Money Goes: Learn to Budget
Once you’ve read a few personal finance books, you will understand the importance of two rules that every personal finance advisor keeps repeating. Never let your expenses exceed your income, and always keep your eye on where your money goes. The best way to do this is by budgeting and creating a personal spending plan to track the money you have coming in and the money you have going out.
Pay Yourself First: Start an Emergency Fund
One of the most-repeated mantras in personal finance is “pay yourself first,” which means saving money for emergencies and for your future. This simple practice not only keeps you out of trouble financially, but it can also help you sleep better at night. Even on the tightest budget—no matter how much you owe in student loans or credit card debt, no matter how low your salary is—there are ways to put at least some of your money into an emergency fund every month.
Start Saving for Retirement Now
Just as your parents sent you off to kindergarten to prepare you for success in a world that seemed eons away, you need to plan for your retirement well in advance—that is, right now.
An excellent way to get started on the right path is to educate yourself about the power (some say magic) of compound interest. Once you do, the wisdom of starting your retirement fund as soon as possible will be undeniable. The simplest way to think of compound interest is as “interest on interest,” which means that you will earn interest not only on the principal (the money you put in), but also on the interest (the money the bank pays you for holding your principal).