But this, too, shall pass. You will not be financially lost forever. It may feel like that when you’re in young adulthood. Managing your finances for the first time can be overwhelming—what with the daily expenses, big-ticket costs such as housing and health care, heavy debts and long-term goals, including your ridiculously distant retirement. But this, too, shall pass.
The earlier you start making a financial plan for yourself, the better off you’ll be. “It’s so important to develop good habits in your twenties, for long-term success,” says John Deyeso, a financial planner in New York City. He works with a lot of younger people.
If you are in your twenties, and can learn from a few of these lessons, please do. It is better to learn from the mistakes of those who are older than you, than to have to learn from your own mistakes. (It’s sometimes called ‘wisdom’)
Although it’s impossible to change the past, it’s important to learn from mistakes.
You can use the lessons you learned from past mistakes to help you in the present. If you do this, you will have a much better future.
Don’t dwell on the past and what has already happened. You are not the same person as you were then and you are capable of doing great things now.
Most successful people are successful because they are able to keep going even after making lots of mistakes. You need to be able to keep going even when things are tough and if you’re struggling with your finances, you might need to be extra careful with your money.
Sit down and make a list of some lessons you have learned over the years. Make an effort to change your ways based on what is on your list. Keep the list close by and read through it every now and then. This will help refresh your memory and you will be more likely to make the right choices when you are faced with a difficult situation.
You don’t have to keep making the same mistakes – you can learn from them and become a new person. You have the potential to be great, so go out there and achieve it!
Here are the ten things you should do to take control of your finances:
1. Establish a budget
Once you’re earning money, you’ll have to figure out how to manage it. Without a budget, you risk overspending on discretionary items and under-saving for important big-ticket purchases.
Lauren Locker, a financial planner in Little Falls, N.J., recommends differentiating between needs, wants, and dreams when trying to save money. Begin by listing out all daily expenses and recurring monthly payments, so that it is clear where money is being spent. For example, Locker was surprised to realize how much she was spending on take-out food, but by being aware of the cost she was able to cut back.
2. Get insured
Bad things can happen to anyone at any time, so it’s important to be prepared by having insurance. If you’re a renter or own a car, you should look into getting insurance specifically for those things. And if your family is dependent on your income, it’s important add life insurance as well.
3. Make a debt-repayment plan
For most adults, debt is a reality. If you let it linger or grow, it can set you back for years in the form of higher interest payments and lower credit scores.
It is important to have a good repayment plan for your credit cards and loans. You can also trim the cost of some loans by setting up automatic payments for your federal student loans which will reduce your interest rate by 0.25%.
The best debt-repayment plan is the one you will actually follow!
4. Develop a marketable skill
Before you can think about what to do with your money, you need to earn some.
You should think of your career as a long term goal, not just a temporary job. Your first job is not going to be your dream job, and it won’t be your last job. However, you should still try to make the most of it.
Erin Baehr, a financial planner in Stroudsburg, Pa., and author of Growing Up and Saving Up, believes that taking risks is important when you are young. “You may need to take risks when you’re younger,” says Baehr. “You may take one job over another and find it doesn’t work out. But when you’re younger, you have the ability to do that. And then that can parlay into a bigger return down the road.”
5. Build an emergency fund
You can’t rely on insurance to cover everything. You should also have some savings set aside in case of an emergency.
Kiplinger’s suggests that you save enough money to cover 3-6 months of expenses in a safe and easily accessible account. You should make contributing to your fund a top priority in your budget and aim to save at least 10-25% of each paycheck until you reach your goal. If you get extra money from sources such as a bonus or birthday gift, add this money to your fund to help speed up the process.
6. Start saving for retirement
Retirement may seem like it’s a long ways away, but it’s important that we start saving for it now.
The earlier you start saving, the better. This is because compounding will cause your retirement savings to grow over time. For example, if a 25-year-old saves $100 per month with an 8% return and quarterly compounding, they will have $346,039 by the time they turn 65.
Instead of thinking of saving for retirement as taking away money from your paycheck or checking account, consider it like making automatic payments to your future self. If you participate in your company’s 401(k) plan (which you should), your contribution can be automatically deducted from each paycheck before taxes. If you have a Roth IRA (which is also highly recommended), you can set up automatic transfers through your bank or brokerage. “It hurts at first, but people adapt,” says Deyeso. “That money gets forgotten about.”
7. Seek out mentors who will give you advice
Wouldn’t it be great if you were a football player and your dad was already a hall-of-famer? Then you would have a much better chance of being successful.
Many are not given a good financial foundation from their parents. And they are not taught the basics of personal finance or investing. Seek out financially successful people to ask questions and to learn from.
8. Build up your credit history
To build a good credit history and earn a good credit score, you’ll need to take on some debt and manage it well. Your credit score is the key to many milestones in your financial life. A good score means lower rates on credit cards and loans. Landlords may consider your score before offering you a lease. And employers might take a look at your credit report during the hiring process.
The length of your credit history is worth 10% of your score according to the FICO model, which is the most commonly used model. However, a large portion of your score- 35%- is based on your payment history. You can improve your score by making sure to pay all of your bills on time. Another 30% of your score is based on your debt in relation to your credit limit. The lower percentage you have of debt to credit, the better.
9. Don’t let life kill your dreams
No one’s life is perfect, and everyone goes through tough times. Life can be hard, and it’s not always easy to see the light at the end of the tunnel. But it’s important to remember that life is just a series of ups and downs, and that eventually things will get better. So if you’re feeling down, just hold on tight and keep going – things will get better.
Illnesses happen, jobs and friendships are lost.
When we’re kids, we’re naive to the complexities of life. We dream of becoming race car drivers and astronauts without understanding how unlikely those goals may be. But as we grow up and life starts to reveal itself to us, we can become much more cynical or “realistic.” We may start to believe that we could never drive a Lamborghini or be a millionaire, and that we’ll never have the job of our dreams.
Letting go of negative thoughts can improve your life greatly. If there is something you have always wanted to do, don’t give up on it now.
The way to achieve your goals is to get rid of any negative thoughts about what you can’t do, and replace them with positive ones.
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