Do you want to retire early or finally take that dream trip you've always been pinning on your board? Being young means having a bright future ahead with many opportunities and temptations; learn some smart budgeting tips for young adults to think of early retirement.
I'm not that young anymore, and although I believe everything happens for a reason, even the bad stuff we learn.
I wish I were wiser about money when I was in my early 20's, looking back. I cringe whenever I think of how mindlessly (I think most of us cringe when we look at our past self) I wasted my hard-earned money.
Being wasteful taught me the importance of minimalism and intentional living. Still, I genuinely wish there was someone to teach me those things early on, and I would have saved so much by now; this is why young adults must learn these tips now when they have time ahead to let their money grow.
Don't believe it's possible?
Trust me; when you get into the habit of budgeting and saving, you'll never look back. If I did it in my late 20's, you can do it too, and hopefully much earlier than me!
If you are a young adult, keep reading these tips to improve your finances and start growing your savings account.
Budgeting for adulthood
Becoming financially independent is exciting, as you can finally spend on anything you want, but with money comes responsibilities, which many are not fully aware of. For those reasons, this is crucial to building good money habits and smart decisions to create economic stability.
A young adult between 18 and 30 should start thinking about saving first, regardless of how big or small the paycheck is. It's easy to waste your money on wants, and marketers know this (the exact reason why ads tend to target mostly young adults!).
There's nothing wrong with spending your money on things you enjoy, but it should never be an entire paycheck (precisely what I was doing), always set an amount to save, the rest to cover your needs, and the remaining money to pay any random wants.
Most young adults do this the other way around and never have any money left. Starting to save early will help you grow an emergency fund, a way to pay off any student debt, or to begin investing.
Why is it so important to start financial planning as a young adult?
As I mentioned saving as early as possible will make the most of your money over time; if you choose a high-yield savings account, your money will create compound interest, which will keep growing over time.
1) Get rid of debts faster
One of the main reasons people can't grow financially is debt; it's crafted to keep you down always, in some cases paying off only interest rates.
Eliminate the anxiety by budgeting and using the leftover money to pay off the debt as soon as possible; it truly is a freeing experience to know you are a debt-free individual.
2) Emergencies won't hit you as harder
Life is a rollercoaster; it has it's highs and lows; we can plan out everything, but life will always throw curveballs at you.
2020 has proven to be the case, where so many people lost their jobs and source of income, budgeting and saving helps long term to overcome those unexpected events.
3) Prepare you for more responsibilities
Nobody can start saving some months before they want to buy something expensive, you might not have too many expenses now. Still, your future self might have more ambitious plans; budgeting in your 20's or earlier will remove some pressure from future payments.
These small actions will create a natural habit to save and invest, turning them into a natural part of your financial life, learning from an early age to manage money wisely.
4) You can still afford the lifestyle you want
Budgeting for adulthood doesn't mean you have to cut off doing fun things; after all, your 20's are the best time to explore and discover while not having major responsibilities.
If you are smart and create a spending plan each month, you will be surprised at how much you can do; this is where minimalism plays a huge role, as you know what you want and will focus your resources on that instead of impulse buys.
Budgeting and tracking each dollar will help you locate your money on things you want to do like scuba diving in the Bahamas or paying for a photography course; the world is your oyster.
5) Use minimalism as a smart tool to save more money effortlessly.
These budgeting tips work for anyone (so if you aren't a young adult, you can also apply them). Take note of these simple tips to create good budgeting habits, especially for young adults.
Hopefully, you feel inspired to start budgeting; check out these budgeting basics for young adults.
1) Keep track of your income and expenses
Make sure to write down for a month how much money enters versus how much leaves.
First, gather all your income sources and write them down; if you have any random income that is not frequent, write it on a separate list. If the income fluctuates, create an average.
On a different list write down all your expenses for one month, it's easier to write everything down each day before bed, this way you won't forget all the small costs.
You can organize it however you like; some people like to categorize, for example, transportation, food, clothes, entertainment, etc.
I write down the day, the name of the store, what I bought, and how much it cost; this way, I can group similar categories by the end of the month.
By doing this, you will see all unnecessary expenses or things you could cut off, like random subscriptions. Use this tool for budgeting your upcoming months and for cutting off as many costs as possible.
2) Save and invest
There are two paths you can take with your extra money, either save it on a high-yield savings account or invest it.
There are different ways to invest; the easiest for me is the stock market, it sounds scary (and it was for me), but there are so many YouTube channels where you can learn plenty about the stock market and how to make your money grow.
I'm no financial adviser, but from what I learn, if you place the money you won't need on stocks that won't disappear (think of Disney or Microsoft), long term, it will create gains much higher than the ones bank interest could give you.
3) Don't forget about your emergency fund
I like having some money saved for an emergency fund (and this is why the first tip is so important to know how much you should save for 5 to 6 months if you have no income sources.
In case something terrible happens, you won't disrupt your entire finances.
4) Have a goal
Budgeting is essential, but it's easy to lose focus or motivation along the way; for this reason, I will always have some goal to work towards something specific. Doing this will motivate you to be more diligent about your budget.
Some great examples of goals include; paying off student debt, saving for your first house, a dream trip, or early retirement.
5) Always keep track of your budget
Budgeting is not a set and forgets thing; your expenses will change over time, so make sure to adjust your budget accordingly.
6) Make it realistic
A budget is a tool to help you have more money in your pocket, not to torture yourself. You should still enjoy some things you like responsibly; if you find yourself struggling to stay within your limits, don't feel bad about switching it. Being honest with your spending is better long-term as you won't break the habit.
7) Don't be scared of banks
Saving your money at home is one of the worst decisions one could make; your cash will be stagnant and actually will devaluate because of inflation.
Research all the bank options in your area and look for a savings account that makes the most sense to you; even though the interest rates are usually low is much better than having your money hidden below your mattress.
You can also google different online banks; they usually offer the highest-yield saving accounts because they have fewer expenses than traditional banks.
8) Use minimalism to help you
One of the best things about minimalism is how it shapes our mind to focus only on the things we truly need or want; no more impulse buying.
Besides, minimalism is just the tip of the iceberg; through minimalism, many people discover other habits to add to their life, such as reducing waste or learning new skills to repair things themselves.
Owning less stuff will clear your mind and reduce your expenses; consider minimalism as a way to improve your budget by removing extra costs you don't need or use much.
Best budgeting methods for young adults
There are plenty of interesting methods and challenges to budget and save; I'm sharing three that will cover most people's needs.
1) Bullet journals
A great way to actively follow your goals; this method is ideal for those who like to write down on a piece of paper their budgets instead of leaving them on an app.
Bullet journals are flexible and allow you to organize and stay on top; not only of your finances but pretty much everything; you can be as detailed as you want using this personalized logbook.
It is a great old-school method for those who prefer using paper money or those who need more control over their spendings.
Store your allotted cash in each category, such as food, transportation, entertainment, etc. Any leftover money by the end of the month can go to your savings account or as a surplus for your next month's budget.
3) 50 30 20 method
Ideal for those who need more budget flexibility and beginners who don't want to feel trapped by their budget.
With this method, you divide your budget into three parts; 50% will be used to pay for all your needs, including; food, shelter, and services. 30% will cover all your wants such as; entertainment, travels, eating out, or parties, and the last 20% to cover your long-term financial goals.
Best budgeting apps for young adults
There are many budgeting apps in the market for those who need extra heps; I'm covering three popular ones; these are not sponsored recommendations.
1) You Need A Budget (YNAB)
A personal finance manager that syncs with your bank account, YNAB will readjust your budget, so it works as each month expenses might change, with this app each one of your dollars will have a job, the service costs $6.99 per month, not the cheapest but the users swear by it.
It works similarly to YNAB; it also connects to your bank account to track your purchases; you can also create budgets and set alerts when you exceed the amount. It's a free app with some pop-ups every once in a while.
It connects with your financial accounts, similar to the first two apps. Still, it illustrates your financial information by taking your spending habits to create a personalized budget. This is an excellent way to see areas where you can reduce your expenses.
The monthly fee is $3.99 per month.
Use these simple budgeting tips to become aware of where your money is going, how much you have left, and start saving for your future goals.