The internet is full of personal finance tips; however, the most common advice you’ll hear from finance experts and adults close to you is to save and invest early on in life. But, sadly, this advice isn’t often put into action.
A post on CNBC reported on a 2019 financial study which focused on young workers aged 18-29 situated in the U.S. Researchers found that the young people are less likely to have savings, with 42% saying they have nothing stashed away for the future.
This complacency could be attributed to the lack of basic financial literacy among the youth. States are beginning to remedy this by implementing personal finance courses in high school and rolling out basic economics classes. But what exactly do people in their 20s need to know when it comes to managing money?
Here are 4 easy personal finance tips to help you prepare for the future.
Personal Finance Tips: How to Protect Your Money
1. Start Planning for Retirement Early
Retirement might be years away but it pays to start putting away money as soon as possible. To put things into perspective, let’s assume you get a 6% average annual investment return on your savings.
- If you start saving at 23, you only have to save around $14 a day to be a millionaire by age 67.
- If you start at 35 , you’d need $30 a day to reach the same amount at 67.
This is the power of compound interest — it allows for exponential growth. An early start complements this principle, because the sooner you start saving, the less principal you’d have to start with to arrive at your target amount in the future.
2. Stick to the 4% Rule
What exactly is the 4% rule? We elaborate on this further in our article on ‘Financial Independence’ that covers some great personal finance tips.
Simply put, save enough so you can live off 4% off of your investments. This rule is derived from The Trinity Study, which reports the effects of a range of nominal and inflation-adjusted withdrawal rates applied monthly.
To put this into numbers, if you make $50,000 now and wish to live on the same amount when you retire, you should accumulate at least $1,250,000 in total.
3. Balance Debt Repayment and Investment Strategies
Once you start earning, you might wonder where you need to put your money. Should you prioritize paying off debts, saving for retirement, or building an emergency fund? The best option is to contribute to all three simultaneously.
There are several factors to consider, according to The Balance’s feature on money allocation. These factors include the debt interest rate, debt amount, and time until retirement.
It’s important to practice discipline when using credit cards but when purchasing using a credit card is necessary, focus on paying back high-interest debts first. You also want to keep your credit under control, otherwise you might be faced with higher interest rates the next time you want to borrow again.
You can pay off the debt aggressively, but never abandon retirement contributions entirely. As mentioned previously, early and consistent investment contributions are the best option.
4. Take Advantage of Free Resources for Financial Management
There are lots of free resources online to help you with financial management which you should take advantage of. Some examples include basic investing courses and webinars.
It’s also useful to keep up to date with sites that are dedicated to personal finance. The how-to guides on AskMoney for budgeting, taxes, and insurance, for example, can help young adults get to grips with these areas of personal finance.
You can get practical articles, such as how to create a working budget for your household and which factors affect your credit rating. Furthermore, stay tuned to Invincible Robots’ content on financial independence, especially if you decide to go into entrepreneurship.
You can also look into free financial apps — Forbes lists 5 useful management apps like the Personal Capital dashboard, which lets you link your various financial accounts. It comes with retirement, cash flow, and investment checkup tools to give you concrete insights on how to grow your money.
As a young adult, you may feel like you’ve got all the time in the world, and setting aside money might feel like more of a restriction than anything else. But instead of seeing responsible financial management as a burden, think about it as a form of self-care — a way to ensure that you’re financially stable and independent in the future.
We hope these personal finance tips will help you. Good luck! For more tips on money visit the Financial Independence section.