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Money Matters

15 Free Financial Advice You Wish You Heard Before Turning 20

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Getting free financial advice early in life can be a game-changer between a life of poverty and wealth. Unfortunately, most schools never teach us how to manage, save, and invest our money. Young people particularly in Africa transition to the financial independence stage in their 20s. For the first time in their lives, they have to make key financial decisions.

Research shows that financial knowledge among young people is often low. So many young adults in the transitioning stage are inexperienced in personal finance. Many are clueless about saving money, investment, and how to stay out of debt. Poor financial literacy is the major reason many young people struggle to save and invest their money.

For everyone who never took finance or economic classes in school, this free financial advice is for you. Sadly, habits are not built in a day. Therefore, the earlier you begin to put this financial advice into practice the higher the chance of mastering them.

1. Always Create a Budget

Budgeting - Free Financial Advice

[Photo credit: Usalg]

Most of the time, when a person earns the first salary, anxiety overrides everything. In this state, a good number of people usually find themselves in frivolous financial transactions. Common consequences of failing to budget your money include out-of-control spending, lack of savings, financial stress, and getting into debt.

To avoid that, plan and manage your money by creating a budget. A typical budget mainly includes your income, expenses, and financial goals. Start with something simple like the 50/30/20 budget or 80/20 budget. Creating a budget helps you to know how and when to spend your money. Budgeting will help you to control your spending, avoid unnecessary debts, and ultimately achieve your financial goals.

2. Build Financial Self-Control

There are many things that can make your spending get out of control. For example, grocery stores place impulse items in places where you must see them before leaving the store. Maybe a show that everyone is talking about becomes available for download and you can’t wait to see it, but an episode costs $2. Your favorite store sends you regular emails showing the latest deals. All these offers can be a huge temptation to your self-control.

Lack of financial self-control triggers impulsive spending. In the end, you will have less or nothing left in your wallet. In the worst situation, you will even spend money meant for your bills. No doubt, spending money usually offers instant gratification. However, it is an express route to drowning in debt.

So, learn to restrain yourself and stick to your budget. Remember, your behavioral habits take a wild ride when your spending goes out of control. Don’t make excuses for frivolous purchases and avoid places where you’re likely to spend unnecessarily. Also, skip expensive social events and avoid purchases that will push you more into debt. The way to having a healthy financial future is to keep your savings up and your spending down.

3. Set an Emergency Fund

Another great free financial advice is setting an emergency fund. No matter how huge your spending, debt, or student loan may seem, and regardless of how little your income is, it is wise to set aside some emergency money in your budget. Doing this regularly will keep you out of financial trouble when unforeseen happenings arise.

You will have money to manage situations such as job loss, sickness, or car problems without getting into debts. You can even set specific amounts for particular situations that you would want to cover. Labeling emergencies makes it easier for you to realistically allocate funds to them.

4. Use your Credit Card Responsibly

Free financial advice about credit cards

[Photo credit: Andrea P]

A credit card is a convenient mode of payment. But you need to pay it off on time to build a good credit rating. A good credit score tells lenders that you use your credit responsibly. Some credit card companies offer appealing rewards to clients with a high credit score. However, don’t have a habit of making all your purchases using a credit card. The ease of payment it offers can throw you into impulsive spending. Eventually, you may run into debts that will take years to pay off.

So, use your credit card in rare and pressing situations or when emergencies arise. Also, ensure to pay your credit in full when you get your bill. Furthermore, avoid having more credit cards than your finances can allow. This is critical when it comes to building a good credit history.

5. Start Saving for Retirement Early

In your 20s, retirement may seem far off. In fact, this is a common excuse people use to justify why they don’t save for retirement. But accumulating a sizable amount is not possible if you start to save for retirement late. So, plan for your retirement early on. This is particularly important because of how compound interest works.

If you start saving early, you will need to invest less principal to accumulate a huge amount by the time you retire. Simply put, a person who starts to save $100 a month in their 20s will accumulate more in their retirement account than one who waits until 30 years to save $1000 a month. Also, an employer-sponsored retirement plan is a great way to save for retirement because of pretax contributions.

6. Invest Early

Many young adults tend to neglect any investment decision until they attain financial stability. However, twentysomething is a prime time to invest, even with a low salary or college debt. Although young people may not have huge sums of money to invest, they have one important resource—time. Time allows an investor to take risks.

Volatile ventures are known to yield more returns on investment. As a young investor, you have time to recover if anything goes wrong. Besides, you have the opportunity to make a riskier investment. By investing early, young adults can take the advantage of the gains from compound interest.

Starting to invest early in life helps a person to focus on the budget, spend wisely, and cut expenses. Lessons learned through early investment pay off heavily in the long run. Young adults who don’t have much to invest can capitalize on the little they have by investing in stocks and mutual funds. One important free financial advice is that you don’t need to wait until you’re rich to invest.

7. Save Money for a Purpose

Having a clear purpose or goal makes saving money easier. Whether you want to accumulate money to buy something or avoid hardship, your savings will benefit you in the future. Take time to reflect on the reasons for saving your money. Attach a purpose to your savings. Come up with both short-term and long-term saving goals. Without a purpose, you might easily withdraw your savings and use the money for trivial reasons.

Once you know why you need to save, you will become more committed to your saving goals. It is also crucial not to aim towards achieving all your goals at once. Instead, concentrate on one long-term goal and short-term goals that blend well with it. That way, you can comfortably save the amount you have set.

8. Choose Worthy Investments

Think about your viable investments and determine how much money you want to put in each. Evaluate them in terms of risk and returns. Investments that have a higher return mostly have a higher risk. Besides, choosing investments with fixed returns can help you to accumulate huge interests before you retire.

Diversifying your investments is a great way to manage risks and maximize rewards. Determine the best investment strategy. Whether you use value investing, buy-and-hold investing, or growth investing strategy, your goal should be to minimize risks and maximize returns.

9. Guard your Health

“You can’t enjoy wealth if you’re not in good health.” Having a health insurance cover will enable you to comfortably pay for hospital bills. With today’s high cost of health services and medication, health insurance is not an option but a necessity. Apply for health insurance if you don’t have one. Employers usually offer health insurance to their employees. However, if you’re buying health insurance on your own, find out the available insurance providers and the plans they offer.

Review quotes from different companies to determine the best and affordable plan that you qualify for. If you have some health challenges, seek advice from insurance providers regarding the appropriate plan to apply for. For young people under parental care, the best choice is to remain under the family health insurance plan if one is in place. You should also eat healthy foods and exercise regularly to stay healthy. Doing that will keep you from spending much of your retirement money on medication and doctor’s appointments.

10. Take Charge of Your Financial Future

An important aspect of personal finance is taking control of your financial future. If you allow other people to entirely manage your financial future, they might misuse that privilege and mismanage your money. Some commission-based financial planners may approach you in the name of offering free financial advice but with ill motives. Others may not be ill-intentioned but may not really understand your financial future. Some may want you to put your money in risky investments.

Rather than depending on others for financial advice, take control and read any free financial advice that you can find. Invest time and effort in reading about personal finance. With relevant knowledge, you will be able to control your financial future and avoid being caught off guard by people that don’t have your financial interest at heart.

11. Discuss Money Matters with your Partner

Discuss Money Matters with your Partner

[Photo credit: Fauxels]

Finances are a leading source of arguments, tension, and even separation between partners. It is highly likely that some tension will arise at some point in a relationship or marriage. The key to addressing financial issues is being honest and open with each other regarding spending habits as well as financial goals.

Ensure that you both agree on how to manage spending, pay bills, and share finances. If financial or personal circumstances change, it is important to talk to each other about ways to manage the situation. Talking about money matters with your partner will help you know more about the person. The conversation will help you to build trust in your partner with regard to saving and building wealth together.

12. Invest in Financial Education

Most schools do not teach personal finance as a core subject or offer any free financial advice to students. But you should not be ignorant of the severe financial consequence of this reality. Enroll in a course that will educate you about money matters including budgeting, saving, investing, and managing debt. Also, buy personal finance books and educate yourself as much as you can. Subscribe to finance blogs and attend seminars on personal finance. Finally, consult experts for financial advice to boost your financial literacy.

13. Have a Side Hustle

Succeeding in life requires that you’re ambitious and hardworking. Whether you are in college or employed full-time, having a side hustle can help you to earn a little more income. This could be a freelance project, a business that you can keep running while doing your main job, or anything else that can bring in extra cash.

A side hustle will provide extra income that you can use to cater for some expenses, build wealth, or pay off debt. Besides getting extra money from the side job, the experience will add to your portfolio. Your side hustle could even turn out into a full-time job.

14. Avoid Get-rich-quick Schemes

Any get-rich-quick scheme only works for the individual that sells it. Such people drain off the money and energy you should be using to invest and build wealth. For the first months, they offer deals that are too good to resist, but afterward, things begin to go south. Also, these schemes are illegal and you will hardly get your money once it’s gone.

15. Be Financially Content

Being financially content is an important financial principle that everyone who desired to attain their financial goals someday should practice. Learn to be content with your financial situation. It doesn’t mean that you should stop working toward your goals. Instead, financial content means that you’re satisfied with the current situation as you work towards what you want to achieve. In other words, you don’t buy a home you can’t afford. It’s about finding contentment where you are today as you work toward your future financial goals.

Conclusion

Knowing the basics about finances is not a luxury but a necessity. Fortunately, you don’t need a special background or a fancy degree to know how to manage your finances. Simply master and practice this free financial advice to become a better manager of your money. If you have already made some mistakes, learn the lesson and move on. As you work, save, and invest, take time to treat yourself and relax regularly. Most importantly, never compromise for health for wealth or you will spend wealth to get your health back.

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