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As a financial advisor, I work with young adults pretty much on a daily basis. What I’ve noticed is that some people take their personal finances very seriously, while others couldn’t care less.
Because you’re reading this article, I assume you’re interested in the financial side of life, which is why I don’t need to convince you about the importance of financial planning.
While we all have our unique backgrounds and life situations, there are certain pieces of advice that apply to everyone.
Here I’ve gathered the best financial advice for young adults that are proven to work and will save you a lot of financial trouble.
Become Financially Literate
Of all the financial tips for young adults, becoming financially literate is the most important.
It is one of those skills that make life a lot easier when you have it, and infinitely more difficult if you don’t.
Financial literacy includes everything from budgeting and saving money to investing and retirement planning.
Sometimes my clients say that they know that personal finance and financial literacy are somewhat important, but they have no use for them since they don’t have a lot of money at the moment.
Well, if that would be true, we also wouldn’t need to dig wells because we aren’t thirsty right now.
It’s quite common to think that you only need to be financially literate when you’re wealthy. I’d say it’s the complete opposite. The less you have, the more skill it takes to accumulate wealth. Being financially smart is infinitely more important when you’re not wealthy.
The number one investment you can make is to invest in your personal finance skills and become financially literate. When you’re financially skillful, wealth will follow.
I’ve also gathered the best financial literacy books for beginners that you can start with!
Make Your Financial Well-Being a Priority
Along with your health, financial well-being is the foundation of a versatile life.
Having your finances in order reduces stress immensely, allows you to live more freely, and gives you resources to pursue things you enjoy.
Although our priorities change throughout our lives, it’s sometimes wise to also do things that don’t seem that important at the moment.
When we’re younger, the financial side of life doesn’t necessarily matter that much because we’re mostly responsible for ourselves.
Unfortunately, the more we advance in life, the more responsibilities we tend to have. A lot of those responsibilities, be it starting a family, owning a house, or building a new career involve having a strong financial foundation.
This is why it’s smart to start building that foundation as early as possible. It makes life a lot easier later on.
You can never go wrong with successful financial planning.
In the end, you only need one thing to prevent most troubles, and that’s saving. The ability to save grants you financial security because if you have money left over after your expenses, your financials are inevitably in good shape.
It’s worth remembering that you can always consult a certified financial planner to help you with your financial planning.
Avoid the Big Mistakes
The ugly truth of personal finance is that once things start to downhill, they do so in an escalating manner. And the worse situation becomes, the harder it is to climb back up.
What causes these problems is the lack of money. And what causes a lack of money? Having more expenses than income.
The best personal finance advice I’ve heard is actually from one of my all-time favorite movies (and novels), Fight Club.
The quote goes:
“We buy things we don’t need with money we don’t have to impress people we don’t like.”
While it’s obviously not intended as a piece of financial advice, it certainly serves as one. So, let’s take a closer look.
The first big mistake is to spend your money on something that’s not at all essential. What we need is food, water, and a safe place to sleep. What we don’t need are expenses like expensive clothes, accessories, gaming setups, etc.
The second big mistake is to buy things with money you don’t have or, in other words, with credit. If you can’t afford something and it’s not absolutely 100% essential, don’t buy it. Simple as that.
The third big mistake is spending to impress. People who like us like us anyway, and people who don’t will not like us a drop more if we spent a fortune on them.
By following the Fight Club rule you are quite certain to secure your financial future. You’ll not only avoid taking too much credit card debt and getting into trouble financially, but you’ll also get to practice self-control.
Start Investing Regularly
The most important thing to do as a young adult is to create a strong foundation on which to build in your thirties and forties.
Once you’ve learned how to save money and have developed your personal finance skills, the next step is to start and invest your savings in something that beats the average rate of inflation.
Some skip investing entirely and put their money in a high interest savings account. Although some accounts pay interest that is somewhat adequate, it’s usually not enough to beat inflation. That’s why people invest their money to achieve their financial goals.
In investing, the earlier you start, the better results you get.
The thing about investing is that more often than not, it’s not how you do it, it’s how long you do it. What makes long-term investing so profitable is the compounding of returns. It’s when your profits start to generate more profit.
Unfortunately, compounding takes time. It’s something that starts extremely slow, but once it gets going, it makes all the difference.
So, if you start saving and investing even a small amount when you’re young, it makes a dramatic difference later on.
Usually, it’s wise to start investing in passive index funds with a regular monthly-based plan, and maybe move to individual stocks when you’ve developed your skills further. You can check out my choice of the best investing books for young adults to get you started!
I’ve also put together an article about the most common mistakes in regular investing that you might want to read.
Also, if you’re new to investing and wish to get a head start, you can always consult financial advisors that provide unbiased advice.
Don’t Take Stupid Risks
To become wealthy in the long term by investing, it is necessary to take some risks. Also, the younger you are, the more risk you can take because your time horizon is longer.
The important thing to realize is that some risks are better than others. For example, you can take a big risk and use your savings to start your own company. If it’s a great company and you have skills that are in demand, the risk might be worth taking.
Then again, if you invest all your money in something extremely risky in hope of getting rich quickly, it’s probably not the wisest risk to take.
Some say that it’s okay to lose everything when you’re young because you can always start again. While it’s true to some extent, there’s also the very real possibility of not having the strength to rebuild.
Some people never recover from their financial mistakes, which is why it’s also important not to risk everything.
It’s okay to put 10% or 20% of your portfolio into something extremely risky, but that has a very real chance of success.
Personally, I’ve made my biggest losses due to sheer arrogance, ignorance, and plain stupidity. What I learned is to always second-guess yourself, to look for contradicting opinions, and aim to be objective about your own decisions.
