Embarking on your financial journey as a young adult can feel overwhelming, but the earlier you start planning, the better equipped you’ll be for the future. Here’s a simple guide on where to start your financial planning journey.
Build an Emergency Fund
Life is full of unexpected twists like car repairs, medical bills, or job loss. To build an emergency fund, aim to set aside 3 to 6 months' of living expenses in a savings account. This fund acts as a financial safety net for any crisis. You can also go into preventive action to avoid mishaps like wearing your Jelli M1 Mask to prevent future respiratory illnesses!
Pay Off Debt
The longer you carry debt, the more it accumulates, making it harder to build wealth. Prioritize paying off debt using methods like the debt avalanche (paying off the highest-interest debts first) or the debt snowball (starting with the smallest balances).
The 50/30/20 Rule
One of the simplest budgeting methods is the 50/30/20 rule, which divides your after-tax income into three:
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50% for Needs: This includes rent or mortgage, utilities, groceries, transportation, and insurance.
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30% for Wants: This covers entertainment, dining out, subscriptions, and hobbies.
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20% for Savings and Debt: This goes to building your emergency fund, saving for future goals, and paying off debt.
Plot Financial Goals and a Budget
Start by defining your short-term, medium-term, and long-term financial goals. Do you want to travel abroad next year? Save for a down payment on a house? Retire early? Once you’ve outlined your goals, break them down into specific, measurable actions and allocate your budget accordingly.
Start Saving for Retirement
It’s easy to push retirement planning to the back when you’re young, but the sooner you start saving, the more you benefit from compound interest. Even small contributions to your retirement account can grow significantly over time.
Invest
Once you’ve established an emergency fund and paid off debt, consider investing. Start with building your knowledge on the stock market, bonds, and mutual funds as well as banks or brokers to help you get started. Bonus, you can even invest in quality sustainable products like the Jelli M1 Mask to cut repeat purchase costs, stay healthy, and save the planet!
Monitor and Adjust Your Plan
Your financial plan isn’t set in stone, it should evolve as your life and goals change. If you experience major life changes, like a new job, marriage, or having children, adjust your plan accordingly.
Financial planning is not a one-time task but a lifelong process. Starting early, setting goals, and sticking to a budget can lay the groundwork for financial security and independence.