Ask any young adult what their biggest goal is and you’ll get one answer: financial freedom.
Unlike the older generations who typically worked their socks off until retirement, today’s young people want to retire early and chase their dreams, like traveling the world. Unfortunately, achieving financial freedom is easier said than done. Today, the average millennial is carrying about $35,000 in debt.
So, what can you do to ensure your financial ducks line up in a row while you’re still young? The financial planning tips fleshed out in this article can help.
Grab a coffee, settle in, and read on!
1. Get a Stable Source of Income
You aren’t going to become financially free if you don’t have any income. Even if you come from wealth and you’re waiting to inherit boatloads of cash, don’t sit around waiting.
For many people, formal employment is the only path. Don’t just settle for any job that comes your way. Getting a good job puts you in a better position to start chasing your financial goals early in life.
If you choose self-employment, whether by starting a business or being a freelancer, don’t lose focus on the ball. At the end of the day, you want to be doing something that gives you a consistent income.
2. Lead a Frugal Life
Let’s face it: life’s pleasures can be irresistible.
We all want to rock designer clothes, drive a sports car (or lately, a big SUV), and live in exclusive neighborhoods. There’s nothing wrong with this if money isn’t a problem, but these luxuries can delay your dream of being financially free.
You might be earning decent money from your job, but if most of it is financing your high-end lifestyle, you’re living on the edge of financial uncertainty. Look, a recent survey in the U.S. found that almost half of all people earning over $100,000 annually are living paycheck to paycheck.
It’s not that these people are being underpaid. They’re simply living beyond their means.
If there’s anything to learn from this, it’s the need to lead a frugal life. It’s fine to treat yourself lavishly from time to time, but you shouldn’t be spending almost all your income on your primary needs.
You can get decent housing that won’t cost you an arm and a leg. If you don’t mind, you can move in with a roommate and split your household bills.
You don’t need all those streaming subscriptions. Nor do you have to eat out often. Home-made meals are not only pocket-friendly but also improve your health. Don’t forget health is wealth.
3. Stick to a Budget
It’s difficult to lead a frugal life if you don’t have a budget. But even then, the problem is not having a budget; it’s following it.
If you already have a budget, that’s a good start. However, it’s prudent to ensure that it’s drawn with your finances in mind. It’s no use sticking to a budget that sends 90% of your income into living expenses.
For starters, stick to the 50:30:20 budgeting rule.
This means 50% of your income goes into primary expenses like housing, food, and clothing. 30% goes into things you can do without but help improve your quality of life. 20% goes into savings.
As you become a more disciplined budgeter, you can gradually reduce the amount of money you spend on wants and increase your savings.
4. Build a Rainy-Day Fund
Rain can disappear for several weeks or months, but it’ll surely fall. Such is the case with life’s rainy days. You might be on a long streak of luck, but there’s no telling when an emergency will strike.
Perhaps your car will die on you when you’re out of money. Maybe you’ll be slapped with a hefty ticket for a traffic offense. Or your HVAC system will call it a day in the middle of winter.
With a rainy-day fund, you won’t be left in a position where you’re unable to solve the emergency. Without this fund, you might be forced to break into your fixed-deposit savings account, which can cost you the accrued interest. Or you might need to borrow money from friends or your bank, neither of which is an ideal situation for anyone.
That being said, don’t mistake your savings with a rainy-day fund. Savings have a greater purpose, such as funding your future investment plan or paying for a house deposit. Rain-day funds are meant for minor expenses that catch you unawares.
If you’re putting away 20% of your income into a savings account, you can take away something like 5% off it for your emergency fund. Once the fund reaches a certain amount that you feel is enough to cushion you from emergency expenses, you can revert to saving the entire 20%.
5. Keep Retirement in Your Sights
As a young adult, the reality of retirement probably hasn’t hit you yet. You still think there’s a lot of time ahead to make financial plans for your retirement.
You’re making a big financial mistake.
If you want to retire early and do all those things you love, start planning early. And even if you want to work until you’re 65 or older, you still need to plan for your early.
This is because it takes several years for the average person to save up an adequate amount of money for retirement. Assuming your job will be your only source of income in your working life, you may never save up enough before your retirement age.
In addition to setting up an individual retirement account, there are a couple of other financial tools you can utilize.
6. Make the Most of Insurance Products
Outside of insurance policies required by law (such as liability insurance for drivers), many people have no pressing incentive to buy insurance. Failing to make the most of insurance is a sure way to ruin your personal finances.
If you don’t have health insurance, for example, don’t wait until you need a hospital admission to learn just how costly healthcare can be. In fact, medical bills are a leading cause of personal bankruptcy.
The types of insurance policies you should buy largely depends on your circumstances. If you’re a homeowner, get homeowners’ insurance. If you’re a renter, get renters’ insurance.
Then there’s life insurance, which every adult should buy. This policy takes care of your debts when you’re gone. More importantly, it provides a source of money for the loved ones you’ll leave behind.
When you’re looking to purchase any insurance policy, it’s essential to work with an experienced insurance agent, like those at Shelterbay.ca. These professionals will help you get the best insurance coverage at the best rates.
7. Start Investing Early
In Canada, about 50 percent of millennials aren’t investing, although about 80 percent are saving.
This is both good and bad news. Knowing how to save money is good, but it’s not likely to propel you to financial freedom. Knowing how to invest is what will get you to the promised land.
While some of the millennials who aren’t investing say it’s because they don’t know much about investing, there are those who think they’re too young to start investing. Well, if you think you’re too young to invest, you might find some inspiration from Warren Buffett, who made his first investment when he was 11!
Becoming an investor early in life gives you a big advantage. In the worst case, there’s plenty of time to make investment mistakes and learn from them. In the best case, your investments will have adequate time to grow.
So, don’t shy away from looking into the stock market, real estate, bonds, and other investment markets. Plus, if you have a healthy savings account, you can use some of the money as investment capital.
Put These Financial Planning Tips to Use
Planning your finances in your younger years definitely goes a long way in your quest to achieve financial success. Nobody becomes a good financial planner out of the blue. You have to take time to learn and get better.
With these financial planning tips, you now know what you can do to get closer to your goals.
All the best and keep reading our blog for more financial advice.