I’d like to share a few tips that my wife and I use to control our financial situation. Through these techniques we have been able to pay off $19,000 in debt within 9 months of getting married. We also save more than 70% of our income, so we practice what we preach!
Tips For Young Adults
1. Pay Attention To Your Paycheck: To plan your spending, it’s important to know exactly how much you take home every month after taxes and deductions. Failing to plan is planning to fail!
2. Know Your Expenses: Now that you know your monthly income, you have to know where the money goes. You can choose to budget, but all a budget does is track your cash flow. Learn how to be a saver, not a spender, and then make a budget if still necessary. The importance of spending less than you earn cannot be overstated.
One way to easily discover and monitor unnecessary expenditures is an online checking account. With an online account, you can track your spending in real time as well as have easy access to your transaction history. This will make the process of becoming a saver much simpler.
3. Kill Your Debt: Some people will tell you that it’s reasonable to carry some debt, so long as it doesn’t become burdensome. That’s crazy talk. Any debt is a burden that should be eliminated.
If you have really low interest payments, you could choose to pay the minimum and invest the rest if you think you can earn more, but I’d probably just kill the debt. We killed $19,000 of debt in 9 months, even though some was at a 3.25% interest rate.
4. Save At Least 20% of Your Income: Long gone are the days of pensions and fat employer sponsored retirements. If you want to get ahead, learn how to save. Don’t stick all this saved money in a local checking account earning no interest though. Consider a high yield savings account and other tax sheltered accounts as mentioned below.
5. Start Investing Now: Start saving and investing as early as possible. As a younger person, time is on your side thanks to the power of compounding. Vanguard is an excellent choice for your investments, or you can pay a small fee to have it all managed for you through a company like Betterment.
6. Sign Up For Your Employer’s 401(K) or 403(b) Plan and Get The Match: If your employer offers a tax sheltered retirement account and a match for contributions, you had better be involved. If no match is involved, an IRA might be a better option. If a match is offered, always contribute enough to get the full match. It’s free money.
7. Start A Roth IRA and Contribute: A Roth IRA is an excellent savings vehicle for many younger individuals who are in lower tax brackets today. There are many advantages to a Roth, but just remember you contribute after tax dollars that can compound until retirement completely tax free.
8. Get Insured: Good health insurance is a must these days, so shop around. Also consider life insurance and disability insurance if you have dependents. If you die, can they continue living a comfortable life? The general rule of thumb is to secure 10 times your salary in life insurance and 65 to 85 percent of your net pay in long-term disability insurance.
9. Fix Your Credit Score: You need a solid credit score to qualify for the best interest rates on a new home. Paying bills on time and paying down debt will help you maintain a strong credit score. You can also get a credit card and begin accumulating cash back or travel points while building your credit.
10. Track Your Progress: Set goals and determine how much you need to save and invest to reach each goal. If you do the 9 above, you’ll be amazed at the progress that can be seen in a short amount of time. You can do it!
Do you have any other tips that have resulted in your success?
I’m Jacob, one half of the Cash Cow Couple. My wife and I enjoy teaching others how to live an abundant life on a very modest salary. We are attempting to spend less than $12,000 in our first year of marriage because we enjoy a good challenge!