10 Essential Financial Tips for Young Adults
The term ‘Finance’, which seems to be complicated to many youngsters is actually very easy to understand. It is nothing but a way someone manages his/her money in such a manner that all the expenditures are met without actually draining out the whole amount. Financial experts technically define Finance as a system of creating, managing, and investing money with a motive to make the best use of the available resources. It is a broader concept that includes currency, debts, securities, and other financial instruments. Finance reveals the future aspects of money as it is closely bonded with ideas of the Time Value of Money, Rate of interest, Accrual Accounting, etc
Now, let’s understand the most frequently used term by our parents or adults while they teach us the benefits of saving and investing the moment we start earning. Such suggestions seem annoying to most of us but actually are a lesson for life. Personal Finance is one of the branches of Finance that specifically define and study the financial decisions taken by an individual. Personal Finance analyses the various financial activities of an individual and helps an individual to manage their finance effectively with minimum risk factors. This branch of finance helps individuals to understand their short-term and long-term financial needs to prepare their budgets and plan their savings, investment, and other financial activities. Besides this, Personal Financing also cut downs the risk associated with individual financing activities by suggesting proper insurance coverage. It inserts the knowledge of tax filing and tax returns among individuals. Since it inculcates proper knowledge of saving and investing, the retirement of an individual is secured. In simple language, Personal Finance is a way one manages the finance to meet all the present expenditures along with saving money for making the future secure. It is an art learned with time.
10 Essential Financial Tips for Young Adults
The most common suggestion received as a young earner is to start saving right from the first salary. The suggestion that appears to be a burden, is as valuable as a diamond for beginners because when we start early we learn early. Here are some financial tips that shall guide an individual in managing their finance efficiently:
1. Saving – A Habit:
The foremost tip is to develop a habit of saving money as soon as possible. The future comes with challenges and is full of uncertainties. It becomes easy to deal with such challenges if one is financially more secure. An individual shall estimate their present financial needs in relation to their earning, so as to calculate the amount that can be saved. Even a small saving can lead to huge investments in the future. So youngsters are suggested to save right from the first day of their earnings.
2. Understanding Future Financial Goals:
It’s important for oneself to set future goals. Finance is a lifeblood of a modern economy and therefore, to fulfil any goal, a person needs money. This fact of life bounds you to set your goals in terms of finance. It is, therefore, important to have some future financial goals to accelerate the saving and channelling the same to earn out of it.
3. Knowledge of Financing:
Understanding the basic financing concepts is key to success. When individual makes their own rule of financing by understanding their power and ability to save and invest, half of the battle is won. Understanding the Time Value of Money, the Power of Compounding, and the Concept of Return on Investment strengthen the base of financing activities and yields handsome returns in the future.
4. Budget Formulation:
A budget is nothing but an estimation of income and expenditures over a specific period of time. The journey of managing finance is incomplete without preparing and executing a budget properly. Given the income, if the person’s expenditures are known beforehand the saving process becomes much easier. Proper paperwork shall be done to record the expenditures and income to draw the conclusion at the end of the period.
5. Avoiding Credits and Debts:
In today’s trendy world, everyone is fascinated by fashion, a king-size lifestyle, and modern technological gadgets. This derives people to rely more on credit cards and other sources of debt. Credit cards are nothing but an extra liability on the shoulder of young people that drain out all their earnings in one shot. Therefore, a person shall be intelligent enough to understand the trap of credit cards and shall hold one only if necessary.
6. Investments:
Just saving money is not enough. It’s like having theoretical knowledge without a practical approach. The journey of Financing will reach its destination only when the savings are channelized into various financing channels that create money out of money. Keeping savings in a locker safely is wasting the potential of money to regenerate itself. Youth shall be brave enough to bear the risk of investing to earn.
7. Understanding Taxes and Tax Returns:
Understanding Taxes and Tax Returns is essential to judge the earning capacity of an individual. The salary received after TDS is the actual amount available for both expenditure and savings, so the person should have knowledge of the tax slab and tax rate before agreeing to a specific salary. A person should also know the grounds under which the tax returns can be claimed to save a little more.
8. Insurance against Risk:
Youth shall never forget that life is full of uncertainties. Every event in life is associated with some risk, however, the degree of risk may vary. Investing in a good insurance plan is always a safe idea as it provides securities against the risk. Life Insurance, Health Insurance, and Retirement Security Plans are some of the basic security to invest in.
9. Differentiating between Needs and Wants:
A need and want have a thread-like difference, and understanding the same creates all the magic. As a youngster, every new thing fascinates us and this is the point where we have to understand the difference between our needs and wants. Invest only in things necessary (need) rather than wasting money on goods that just build up your status in society (want).
10. Power of Mutual Funds and Diversified Investment:
Mutual funds and SIP are not just a word but a mantra to secure the future for beginners. It is a platform to embrace the benefits of a diversified investment by those who are at the starting point of their career. Being financially independent is wonderful, but it’s incredible to understand the regenerating power of money. You are the conqueror if you know how to multiply your resources using the weapon of Mutual Funds and Diversified Investment.
