For young people entering adulthood, one of the ways that life hits hard is in the area of finances. In a financial literacy study conducted by the University of South Florida, less than half of college-graduate respondents could correctly answer three questions designed to determine financial aptitude.
If you’re embarking on adulthood and find yourself unsure about money management, know two things: You’re not alone, and finances are not as hard as you may think. To get started, here are six basic pieces of financial advice for young adults, along with some resources that will equip you to take the next steps in your financial journey.
1. Practice Self-Control
As with all of life, the foundation for financial wisdom goes hand-in-hand with Biblical principles. The Bible has plenty to say about money itself. And the cornerstone of financial wisdom arguably boils down to one fruit of the Spirit: self-control.
You’ve probably already been bombarded with offers from creditors. The car lot wants you to sign up for a loan, promising low interest. That table in the student union offers you a credit card with a supposedly low APR. Even the clerk at Target tells you about discounts if you sign up for store credit.
All of these things sound pretty sweet. I mean, who wouldn’t want to have everything they want right now? But eventually, you do have to pay for those purchases. And if you don’t have the money for it, that’s going to be a problem. Lenders can repossess that car if you don’t make payments. And credit card companies will start charging interest for every day that you hold a balance.
That’s why self-control is essential when it comes to money management tips for young adults. Don’t spend more than you have saved. Or, in other words, exercise self-control by saving up for a purchase before you buy it.
2. Budget Wisely
Maintaining a position of self-control in finances requires forethought. That’s where a good budget comes in. A budget looks at the money that you expect to bring in each month (income) and compares it to the money you must spend each month (expenses). That way, you’re informed beforehand about where your money needs to go and how much you anticipate having left over.
Normal expenses to include in a budget would consist of living expenses like housing, food, utilities, clothing, transportation, insurance, and communication. There should also be allowances made for giving and saving, which we’ll cover below. If funds permit, you can also include things like streaming services, subscriptions, and memberships.
This budget template by Christian financial advisor Dave Ramsey is an excellent way to get started. Detailed instructions will help you walk through your needs, wants, and savings, in order to have an accurate financial picture. Budgeting is the best way to stay on track with your financial goals and desires while always practicing self-control.
3. Save for the Future
As mentioned, a part of your budget should be devoted to saving. The first priority in saving should be to establish an emergency fund. Ideally, your emergency fund might eventually consist of three to six months’ worth of income set aside in a high-yield savings account. It shouldn’t be touched for things like concert tickets or trips, but rather be used for out-of-budget necessities like an unexpected car repair or a ticket to visit a sick relative.
After you’ve built up a good financial cushion in your emergency fund, you should start to strategically put away some long-term savings. You may have already been introduced to the idea of compound interest. As an example, if you start saving $50 per month in a shoebox at age 20, you’ll have $24,000 at age 60. But if you invest that same $50 per month in an investment account with 10% interest, you’ll have $318,890 by age 60! Your future self will thank you for practicing long-term saving now, even if it’s just a little bit. This investment calculator can help get you motivated.
With emergency funds and long-term savings taken care of, you can start to save for the fun stuff — that newer car or game console or road trip with your besties — all the things that you want, but don’t necessarily fit into a monthly budget line item, per se.
4. Safeguard Your Health
Good financial planning for young adults should also include a plan for healthcare. In our current American economy, any unexpected health crisis has the potential to financially cripple or bankrupt individuals. According to the U.S. Health Insurance Marketplace, one fluke bike accident can set you back $7,500 for a broken leg, and a single three-day hospital stay can cost upwards of $30,000.
It may be tempting to believe that since you’re young and in good health, facing those kinds of bills will never happen to you. But Bankrate says, “1 in 10 Americans have medical debt, with millions owing a balance upward of $10,000.” That’s a significant amount of debt that can affect your quality of life.
Even if you’re spared from catastrophic health crises, a simple 15-minute doctor’s visit for antibiotics could cost you between $109 and $341, according to Healthcare Blue Book. A few ear infections or flu tests, and all of a sudden, your monthly budget goes out the window.
To safeguard your health while also protecting your finances, you’ll want to research healthcare plans that work for your current needs as well as any future emergencies. Medi-Share Value is a great option for young adults who enjoy relatively good health, with low monthly share options that significantly reduce out-of-pocket expenses.
5. Build Credit History
As you look to your financial future, establishing good credit is necessary if you plan to one day make a large-scale purchase, such as a home. Most likely, you’ll need to buy a home by borrowing money in the form of a mortgage. In order to qualify for a loan of this size, lenders will want to know that you have a good credit history. Thus, it’s important to start building that history now.
When it comes to financial tips for young adults, building credit is probably the most controversial point. The credit-building issue that divides Christian financial experts usually revolves around the issue of debt; some adhere to a strict no-debt policy, while others see debt as financially savvy when used responsibly. As time goes on, you’ll want to research which school of thought seems most prudent to you.
The fact is, a good credit history is built upon a track record of on-time payments. If you’re making payments on something, that means you’ve bought it on credit. In other words, you’ve incurred a debt. So, in order to build a credit history, debt must be involved to some extent.
One responsible way to incur debt (and thus build a credit history) might include getting a credit card, either through your bank or through a rewards company. Now, here’s where the first point of self-control is imperative: Only use that credit card for purchases that you know you can completely pay for when your bill is due. If you pay off the credit card in full, you’re establishing good credit and avoiding interest — wise! If not, you’re racking up interest and avoiding self-control — not wise!
Another way to build a credit history might be to have an older adult, such as a parent or other relative, add you to their credit card account. That way, their on-time payments show up as a positive on your credit report. However, it’s worth noting that lenders are wise to this tactic, and when you go to get a mortgage or other loan, a shared-account credit source may not be worth as much as you’d hoped.
6. Give Generously
As a final point, let’s bring it back to what God’s Word says about money: It all belongs to Him. Psalm 24:1 says, “The earth is the Lord’s and everything in it. The world and all its people belong to Him.” We may think that we own the money in our bank account, but God is clear that we don’t. We’ve simply been entrusted with that money — it really belongs to Him.
As such, God wants believers to give a portion of what He’s entrusted to us back to Him. Today that usually means giving to the church or missions. Proverbs 3:9 says, “Honor the Lord with your wealth.” And while we no longer live under Old Testament law, many biblical scholars consider the guidelines of Leviticus 27:30 to be a good rule of thumb, where God instructed His people to give a tenth of their income.
When you’re looking at your budget, it may seem foolish to give 10% of your income away. There’s so much to pay for and save for! But God promises to bless those who obey Him in the area of giving. Sometimes it seems impossible to believe that God can make 90% of our income go further than 100% — but that’s what makes it faith!
Finances can seem complicated. And it’s true that these six points barely scratch the surface of financial advice for young adults. But if you allow these fundamentals to guide your next steps, you’ll be on track for a wise financial future.