By Josh Wilson, a new and upcoming blogger who just started Family Faith Finance. Feel free to check out his blog and learn more about his journey through life, or follow him on twitter: @famfaithfinance!
Since none of us were born with the know-how to handle our own finances, it’s important to learn the skills over time. Unfortunately, more often than not, young people learn about the finances the hard way. Lately, this even involves moving back home after college with tens of thousands of dollars in student loan debt or credit card debt. A recent study found that 47.60% of Millennials carry a credit card balance from month to month. However, the same study found that 44.60% of these Millennials didn’t know the interest rate that they are being charged!
A few basic things that every young adult should learn includes basic budgeting, bank account information, wants versus needs, knowing when and how to save, knowing how to develop a credit history, and knowing when to ask for help.
Basic Budgeting for Young Adults
Knowing how to plan and maintain a monthly budget is the foundation for financial health. A budget is simply a way to understand how money comes in and how it goes out. There are apps like BillGuard, Dollarbird, and Fudget to track on your phone so your budget can work with your schedule.
In addition, when building a budget online or with pen and paper, the main aspect within a budget is to know the difference between needs and wants. This means prioritizing a budget, which will include groceries, mortgage, vehicle, and so on, followed by cable bills or other fun items. When money’s tight though, fun can wait.
Bank Account Basics for Young Adults
Most Millenials rarely write a check and even more are already leaving home or college with credit card debt. With that in mind, there are some banking basics that should be followed to avoid overdraft fees, annual fees, or ATM service fees, which can all be avoided. Essentially, this means keeping up with your day-to-day account at the ATM or with a mobile app.
Knowing How to Save For Emergencies
Beyond the basics of budgeting and understanding bank accounts 101, the next major step is to start a savings account for emergencies. Many young people have a natural, subconscious attitude that they’ll live forever so they ignore the present in terms of saving for the future. However, it’s vital to start saving right away.
The best way for a young person to start saving money is to take some time to do a proper budget and then set up an automatic savings transfer so the money can’t be spent in the first place. For those young adults with jobs who offer a 401(k), this is another option that should be used.
Developing a Positive Credit History
Once a budget and savings account have been set up, it’s time to consider a positive credit history, as it’s never too early to start. For young people, this could mean starting as a co-signer, getting a college credit card, or even getting a secured credit card, to teach responsibility while also helping to build credit.
It’s also important to know what counts as good credit history. Since a family’s mortgage counts for credit, many young people may assume that apartment rent also counts for credit, but that’s not always the case. Unfortunately, there’s more ways to acquire bad credit than good credit.
Knowing When to Ask For Help
Since nothing in life is guaranteed, it’s important for young people to know when they get in over their head. This means starting to build credit and save money at an early age, with the goal being a major purchase such as home ownership. Another unfortunate truth is that mistakes in youth can hurt you much later in life.
If a young adult makes a major financial mistake, it’s important that they ask for help right away. Some mistakes are going to be larger than others, like a car lease with no job, for example, but it’s best to seek help right away, regardless. If parents can’t help, a Credit Counselor or Student Loan Counselor may be able to provide advice.
Preparing For the Future Today
All in all, it’s best for young people to start budgeting at an early age and getting familiar with their needs and wants. Some young people may feel that their phone or tablet is a necessity, but it doesn’t come in the first few needs for daily life. For those who seek help, there are apps and websites that can provide advice.
Once a basic budget has been planned out, it’s time to save for emergencies and start building good credit. This might mean setting up an automatic savings deposit and also getting a first credit card and using it for rewards, while also always remembering to pay it off on time.
Finally, if you feel like you’re getting over your head, ask for help from people who understand your situation and then look for a counselor for specific advice.