Everybody will agree that financial literacy is essential, especially for young adults. However, a lack of information about proper financial planning, effective budgeting, saving, and investing can lead to failure in attaining your goals and dreams.
The world has grown into a global village where competition is a daily struggle. There are only many limited spots on top, and everyone wants to be a winner. Competition is also known as survival of the fittest, where only those who're smart enough manage to survive in this competitive world. Here are some essential financial tips for young adults:
Many decisions come with adulthood, and they can be intimidating. However, you have no choice but to confront the reality that you are solely responsible for your life and arm yourself with the right tools and skills to succeed.
One of the most important things you can do is keep track of all your debts. This includes paying down those debts and knowing exactly how much you owe for each, what interest rate you're working with, and when each payment is due. You might want to consider creating an Excel spreadsheet or choose from one of the many budgeting apps available to help keep track of these details.
If you don't know how much debt you have, how can you make a plan to pay it off? And if you're not keeping track of your interest rates and payment due dates, there's a chance that late payments will damage your credit score.
What about having no debt at all? Does that sound like something you would want to achieve? While a debt-free life is great, debt can also do great things for you - help you acquire capital, take advantage of a quick business opportunity and save you during an emergency.
So the question of why you are borrowing money has to be at the centre of your debt management. Plus, can you realistically pay back the loan you are taking?
You have many responsibilities and lots of cash outflows as a young adult. You can't afford to waste time, energy, or cash.
Some things you need: food per week, rent or mortgage, car insurance, and cooking gas. Others you want; vacations, designer watches, clothes and shoes, high-end furniture and living in an exclusive neighbourhood. You have got to choose what is more important for your financial future.
If you have a job, set up an automatic payment with your bank to transfer the required amount into your savings account every month or as often as you get paid. That way, there's no excuse for not paying for it.
Automating your savings is the best way to start saving money as a young adult.
In your early 20s, you might be in the "I'm just going to buy stuff I like" phase. But it's essential to think about the future and start saving early—especially when it comes to retirement.
Even if you have a job where you get free lunch and a sweet benefits package, you need to make sure that you're saving more than 5% of your salary into your retirement account.
If that's not possible, try this: Start by putting away like 500 Ksh daily. We promise you'll thank yourself later.
The biggest reason to start saving as early as possible for your retirement is because of the magic of compounding interest. You will need to save as much as twice what you can save in your twenties if you delay retirement savings 10 years later to get the same retirement lump sum you would have gotten had you began a decade earlier.
So you've made it out of college, and you're ready to take on the world—or at least make some money.
So, how do you get started?
One useful tip is to sell unwanted goods. Now, while it might sound simple—selling your stuff—there's much work to it. You have to be able to evaluate what you have, price it appropriately, and then market it in a way that gets people interested.
This can give you some good money to move out into your own place, act as a boost when buying new things for your employed life such as a large appliance as well as money in your growing emergency fund.
A secondary point to this is to only buy what you need and in the right quantity and quality. Now that you have sold any unwanted stuff, do not fall into the trap of buying more than you need. Also, if you are buying, say a cooker, get the best quality, preferably buy new and tick off that expense for at least a decade.
If you're young, there are plenty of ways to invest your money. What’s more, you can afford to take big risks and are assured of time to recover if it backfires - or you will actually enjoy huge profits.
Look around and see what kinds of projects you can get involved in that are more than just getting a regular job—you'll learn skills and meet new people while also helping your bank account grow.
The best way to find these opportunities is by networking with friends and family, asking around to see if anyone needs help with something.
It's also worth checking out local small businesses to know if they need any extra help. You never know what valuable experience you might pick up along the way.
It is recommended that you take into consideration creating targeted savings accounts. These accounts are designed specifically by you, for you and your future needs.
For example, if you're planning on starting your own business, it would be in your best interest to open up one of these accounts at the earliest possible time. You will be saving regular amounts that you have calculated will add up to the needed capital when it is time to launch your business.
Many people, when trying to figure out where they should put their money, prefer an account that does not require them to worry about monthly payments. While this is great, it is important to consider the prospects of earning interest on this money and going for the option that offers the best possible interest rate with minimal fees/costs or taxes.
Consider your personal financial goals; moving out, furnishing your house, starting an emergency fund, buying a plot of land, getting a professional certification, starting a family, getting a child and so on.
You can then order these goals in terms of priority as well as what is short-, medium- and long-term. Once you know what you need to be working towards today, you can open a savings account for each of these options.
In school, you had periodic reviews of your understanding of course content, at work there are annual appraisals of employees, companies review performance quarterly, the government too reports on economic performance periodically - you too have to constantly keep reviewing your personal finances.
You have to audit your income, expenses, overall financial position, as well as your financial goals and strategies at least every three months if you are keen on achieving your most cherished financial goals.
In addition to looking at your overall financial situation, make sure you're also regularly checking your credit score and credit report. Do this by getting a free copy of your credit report from credit bureaus once every 12 months. Knowing about your credit will help you see what kinds of loans you can get and the interest rates you might be charged on those loans.
Read Also: How to Do a Complete Financial Self-Audit
Monitoring your spending is one of the easiest ways to get the best out of the money that you have.
On a basic level, monitoring your spending means keeping track of how much money you spend each month, especially on non-essential items.
It's not as complex as it sounds—it keeps a running tally in your phone or notebook of how much you've spent on eating out, entertainment expenses etc.
Then, add up all those numbers at the end of the month and compare them against what you've earned that month. If you're spending more than you're bringing in? Did you spend more than you had planned to? Wait, did you even plan? Time to reign it in.
Read Also: 8 Amazing Benefits of Tracking Your Spending
There's no sure-fire way to tell if you deserve a raise, but there are some things you can look out for yourself. If your colleagues are making more than you and doing the same amount of work, it's time to ask for a raise.
If you make less money than someone on the same pay grade as you, then it's also time to ask for a raise. It's essential to know your duties and how much pay goes along with those duties. If you're doing more work than your colleagues but getting paid less, it's time to ask for more money. It is especially true if the company has had a good year.
If you are formally employed your company might give you benefits such as health cover, paid leave, matching pension contributions, remote work options and so on.
It is very important that you first know what benefits your employer offers - since some may not be forthcoming until an employee insists. You have to know if you are eligible, what to do to be eligible and by all means ensure you can get most if not all the benefits your company offers its employees. Negotiate.
Pension contributions are especially a great benefit to take advantage of. If the maximum tax-deductible pension contribution is Ksh20,000, you can try as much as possible to be in a position to get there. If your employer matches your contribution, choosing to contribute Ksh10,000 will guarantee you Ksh20,000 in pension contributions every month - and guess what, that Ksh20k will be removed from your taxable pay!
Analyse all the other benefits to get the maximum advantage possible; do you have persistent eye or dental problems? Then negotiate for a health cover that gives you the biggest possible allocation for optical and dental etc.
You may not realise how much money you can save by being smart with how you negotiate, handle employee benefits.
When it comes to your financial health, there is no one size fits all method. It's essential to look at your situation and make decisions that are right for you.
Armed with the tips and more, we hope you will be well on your way to a better financial future.