Financial discipline isn’t a strong point of the current generation.
According to recent numbers, 59 percent of parents continue to provide financial support to their adult children.
This is startling and demonstrates how so many young people have yet to take control of their finances.
Nevertheless, it’s never too late to turn things around. Young people should follow this financial advice if they want to make sure that they stay firmly in the black.
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Observe the Key Financial Rule
If you want to save money and ensure that you always have a nest egg, you need to observe a key financial rule.
This is the rule of 50/30/20. The best financial move you can make when you are young is applying this to your finances.
- 50 percent of your income should toward your needs, such as rent and food.
- 30 percent of your income should toward your wants; the things that you love to do.
- 20 percent of your income should go directly into your savings.
Over time, and combined with some compounding, you could become a millionaire when you retire simply by saving about $5,000 per year. It sounds like a big number, but by saving 20 percent of your income you can easily reach this figure.
Temper Your Expectations
The media is responsible for allowing young people to believe that they can live like their parents as soon as they fly the family nest.
This isn’t possible and can never work because your parents worked for decades to achieve what they did.
You need to be willing to live a thriftier lifestyle than they did. And there’s nothing wrong with that. You may only have a couple of years worth of experience in the workplace.
They have had twenty years, so of course they are going to have a bigger house and a better lifestyle.
Don’t attempt to chase that lifestyle on a diminished starter income.
Saving Over Investing
Read any financial guide and they will tell you all about your need to invest in this and that.
But as a young person, you need to grasp the fact that investing your way to success is a lot harder than saving your way there.
By all means, make some investments, but the bulk of your efforts should be on saving. It’s much easier to simply put away 20 percent of your income than it is to make 20 percent returns on any investments you decide to make.
The Power of Compounding
Compounding is a magical word in finance. Compounding is where interest builds on interest every single year. You can invest $1 at 10 percent returns.
After one year you will have $1.10. But the next year you will have $1.21. The increase gets bigger every single year. By starting your compounding journey early, you are always going to make more money.
It’s notoriously difficult to start saving for your retirement later in life. Compounding moves quickly and it’s difficult to catch up again.
Start saving for retirement as early as possible. The delayed gratification will be worth it when you’ve had enough of clocking in at work every day.
Think Human Capital
Forget about investing in your bank account for a moment. How are you going to invest in yourself to make yourself a more valuable commodity?
You as a person are key to financial success. You are your greatest asset. Invest in making yourself a more valuable worker.
The generation of today faces a lack of jobs and an unskilled labor force.
Concentrate on filling the roles employers are having trouble filling. That is how you get on the career ladder and begin commanding a big salary.
Your college degree is not going to entitle you to a career like it once did. It’s the bare minimum. Smart people know that they need something more than that, and so they are going to go out of their way to get it.
Prepare for Emergencies
Most people will face one or two financial emergencies during the course of their lives.
They can either leave you in ruin or you can get through them. Put aside some money in a savings fund. Build it as high as you can, but aim for at least six months of your regular income in reserve.
These financial tips should set you well on your way to building up a healthy financial future. But the time to get started is right now.
The longer you leave it the more benefits you are potentially missing out on.
How are you going to succeed financially going forward?