Finance Tips for the Young Adult

Money makes the world go around, but the manual for this powerful tool is all too often undervalued for the young adult. If you’re somewhere between 16 and 25, your financial habits will determine your quality of life in a hurry. I want to share some lessons I’ve learned the hard way so that you might have the opportunities to reach your goals with speed and precision.

As the foundation of your future, consider your financial health to be the core of your life goals. At the moment, the money you earn and spend might seem simple, but it may be surprisingly more complicated than you realize.
Prepare for the future with the 5 golden rules:

Avoid The Bad Habits

Actively Save Your Money

Manage Your Credit

Spend Your Money Carefully

Monitor The Direction In Your Life With Goal Setting

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Avoid The Bad Habits
There’s going to be plenty of important decisions you’ll be faced with as an adult, but none may be more important than expelling some bad habits. While you’re young, you might feel invincible, but think about your future. Things that are bad for your health will become costly.

Do not become a victim to tobacco. Cigarettes and chew are highly addictive products that cause direct harm to the body without providing any true benefits. This kind of addiction will cost you daily, and your quality of life will deteriorate.

Illegal drug use is expensive, dangerous, generally addictive, and against the law. Drug use will cloud your judgment during an important period of growth as you establish yourself. If you or someone you know fits into this category, think about the expenses of the drugs and the toys that go along with using them. This nasty habit could also put the user in jail or even cause death.

Carefully monitor your alcohol consumption. Drinking is a means of celebration and relieving stress, and there’s nothing wrong with this. However, there are some key points that should be reviewed:

�· Are you drinking too often?

�· Are you spending too much?

�· Are you making poor decisions while drinking?

Control the urge to gamble your hard earned money. There is no quick way to get everything you want, but there’s plenty of temptation to try. Gambling can be in various forms such as dice, cards, slots, lotteries, sports, and even financial institutions such as the stock market. Gambling should be a form of entertainment. If you prefer to spend $20 for a few hours of fun in a gambling environment every now and then rather than a night at the movies, then by all means, enjoy yourself. But the moment that you need to win in order to catch up, you’ve got to step away. Gambling should not consume the greater part of your expenses and you will never beat the house. You can put your money to better use paying down your debts and establishing your priorities.

And finally, don’t let your anger get the best of you. This might not appear to be a financial burden, but this is about preventing avoidable mistakes. Anger may result in traffic tickets, accidents, damaged property, or careless thinking. Sometimes attitude alone can be a benefit or burden for your future.

Actively Save Your Money
With every paycheck you receive, there is a record of deductions that is set aside for income taxes, social security, and any health benefits. This essentially guarantees that the proper people will receive their money before you find the opportunities to spend it. Follow this example and save a portion of your paychecks on a regular basis. This takes a degree of discipline, but saving 5% to 10% of your earnings will add up. For example, if you see $2,000 a month after taxes and save 5% of that regularly, then in a year’s time, you’ll have saved $1,200 in exchange for a small sacrifice of $100 a month!

Now that you’re saving, put this money to work for you. Be sure to have a savings account tied to your current checking account. Typically, this can protect your checking account from costly over-the-limit fees and returned checks. A checking account should have balances that float anywhere from $20 to $2,000. Any more than this, and your money could be put to better use elsewhere. But someday you might find yourself overdrawn, and by having your savings account linked with your primary checking, the fees will be kept to a minimum. Some banks may charge a small fee such as $3 a month if your savings account is under $300.

Your first priority is to get into the good habit of saving. But now that you’re socking that cash away, when should this money be used? Anything can happen in real life, so your savings is first and foremost your lifejacket. (You should not consider available credit balances as an easy way out of hard situations.) What would happen if you lose your job? What happens if you’re in an accident of a serious nature? Your first savings goal should be three months of your current living expenses. However, you’ll be tempted to utilize this savings for a major purchase like a vehicle. Realistically, you’ll still be okay as long as you keep a portion of your savings and continue the good habits. In fact, using your savings for a big purchase like a vehicle could save you money in the long run if it keeps you from borrowing.

Manage Your Credit
You’ve heard the saying, ‘Money is the root of all evil.’ Hopefully, you can see money for what it is, a tool. Money in itself is not evil, and neither is credit. Credit can work for you or against you, but in the end, your credit is essentially an unbiased financial account of your financial history.

Utilizing credit is a large responsibility, and a needed tool if you’re to achieve the higher goals of life. If you embark though life thinking that you can do without credit, then you’ll have a difficult time purchasing a home without it.

Here are some important tips regarding credit:

Ã?· Avoid store credit cards – These are generally high in interest, not very handy for purchasing outside of that store, and generally not very helpful for your credit.

Ã?· Purchase your items with a plan – If an impulse buy depends on the acceptance of a credit application, you are probably not thinking ahead about how your items will be paid.

Ã?· Beware of credit incentives – 12 months same as cash can be costly if you’re not able to pay off that balance in time. Usually these deals will penalize you with a lofty interest rate and even charge interest for the previous months if you’re not careful.

Ã?· Pay more than the minimum payments – Minimum payments will not pay off the balance anytime soon. Usually the minimum payment will only pay the interest accumulated.

Ã?· Keep your balances under control – Aim to keep your balances under 50% of the spending limit. If your balance reaches the end of the rope, you’ll end up paying for the over-the-limit fees once interest is accumulated. Your credit score will also suffer if you have too little available credit.

Ã?· Keep your accounts open – Your credit score health relies on open accounts and frowns on accounts that you or your creditors close. It’s okay if you keep a zero balance and in time, your account may naturally expire if it’s not in use. But if you’ve found yourself in credit trouble, do not close your accounts in a knee-jerk reaction.

Ã?· Consider the Opt-Out list – If you’re tempted by credit card offers in the mail you can visit www.optoutprescreen.com to be put on the opt-out list. This empowers you to ask for credit when you want it, rather than the other way around. This will also help protect your identity in case your mail ends up in the wrong hands.

Ã?· Order your free credit reports – Keep an eye on the information found in your credit report on a regular basis by visiting www.annualcreditreport.com. Check for errors, and see where your credit habits might be improved. You are entitled one free report from each of the three major agencies every year.

There is a lot of useful information about credit and what it can do for you. Learn how to make the most of this tool and how to protect your identity from various books and websites. www.creditinfocenter.com is a good website to begin with.

Most loan companies are now online and offer recent account information, payment options, and other useful tools. I was happy to find that when I applied for a Visa card through www.providian.com, they help me keep track of my credit score free on a monthly basis. Whether or not I use this credit, my credit score information has helped me time my refinancing options to my advantage.

Spend Your Money Carefully
You are what you buy. From a salesperson’s point of view, they will often have the intuition of knowing what you’ll buy before you do. Your wardrobe, accessories, the way you talk, and your confidence during your shopping experience will peg you into one category or another. Just like anything we learn, experience is important when it comes to buying. How could shopping benefit from experience? The average young adult starting out needs just about everything and so impulse is a big part of the buying experience.

Let’s face it; if there’s anything worth buying that’s within our financial grasp, it can be done. After all, credit is generally easy to access and we could always save for rainy days a little later than we’ve intended. But think about your purchases. Are the items you’re considering fulfilling a need, or is it about filling your wants?

To be a smart consumer, it’ll require some comparison-shopping. As a general rule, the more expensive the items are, the more important it will be to do your homework. The best tool for this kind of research is the Internet. You will be able to easily find products that are similar, along with their prices and customer reviews.

Here are some handy rules to think about when shopping:

�· Is this about filling a need or a want?

�· Never buy the cheapest because it may not last.

�· Never buy the most expensive because the price is likely inflated.

�· Never buy the newest item because the price is likely inflated.

Ã?· Think twice about purchasing an extended warrantee. These items usually already have a limited manufacture’s warrantee and a replacement of these items will usually be far more affordable before the warrantee’s expired.

�· Never purchase an expensive item on impulse. Think about it for at least a day, or until your next paycheck.

�· Think about the seasonal timing of your purchases. You can often get a better deal near the Christmas holidays.

Ã?· Don’t spend more than you can afford! You’ve worked hard for your money, so be sure to keep enough for some savings.

Ã?· Consider purchasing used. Just because it’s old, doesn’t mean that it’s not worth your while. Often you could purchase a used DVD title for the cost of a rental. Be sure that you can examine your purchases closely, and check on a return policy.

Ã?· Take a walk through a flea market or thrift store. Besides focusing on any additions to your home, take a look at some of the junk that gets passed down. Every one of these oddities has been originally purchased by somebody at a retail price. Don’t let this happen to you. If you purchase things without a plan, or necessity, if you buy on impulse, you will gather this kind of useless collection.

�· Play with what you have before you buy the next new thing.

Ã?· You can’t always get what you want.

Monitor The Direction In Your Life With Goal Setting
A failure to plan can be a plan to fail. I applaud spontaneous people for finding adventure in life, but your life should at least have some sort of broad outline. Ask yourself about the following:

�· What do you want to do in life that will earn you income?

�· What kind of education will you need?

�· What kind of transportation can fulfill your needs and wants?

�· When do you want to purchase a home?

�· When do you expect to accomplish your goals?

Your list of questions will be different, but there are plenty more that you will need to discover for yourself. Remember, life is a long journey. You may trust your 20 something year experience, but you’re pretty fresh in the real world of adulthood. Paying bills, entertaining yourself, preparing for the futureâÂ?¦ it’s all a delicate balancing act. And along the way, there’s just enough growing up to do that will change your priorities.