7 Financial Tips for Young People

“I wish I would have built a financial plan when I was in my 20s”.  This is one of the most common phrases I hear from financial planning clients once we have finished their plan.  Don’t we all wish that we could share our current wisdom with our younger selves?  Not only would we all have had financial plans in place before age 25, but we would have avoided a whole bunch of other missteps that we invariably took along the way.  Some unfortunate fashion choices in the 90’s come to mind!

While it might be too late for some of us to change our past decisions, those of you in your teens and 20s still have plenty of time on your side!  Below are 7 tips that all young people should consider following.

1. Really consider how much college debt you take on. A college education is important, and often necessary, depending on the career you plan to pursue.  However, saddling yourself with a large amount of college loans right out of school will put you behind on saving for retirement and other large purchases, like a home.  One way to manage the cost of a college education is to do two years at a community college before transferring to a 4-year university to finish your degree.  Also, make sure to do your financial aid research.  Talk to the financial aid department at all schools you are considering to find out what they are willing to offer.  Search out grant and scholarship opportunities that exist.  There are many websites and apps that can assist you in this search.  Finally, consider getting a part time job while in school to help pay some of your living expenses.

2. Learn to handle credit responsibly. Get a credit card and start using it for small, recurring expenses.  Good expenses to start with are things like gasoline and groceries.  Make sure to pay your credit card bill in full each month.  Good credit will be important to you when it is time to begin making large purchases like a car and a home.  You will qualify for lower interest rates if you have a good credit score.  It takes time to build your credit record since it is based upon things like length of credit, types of credit (revolving vs. loans) and on-time payment percentage.  Starting to build your credit record at a young age will be beneficial to you if you handle it responsibly.

3. Create a budget. Learning to live within your means is an important skill at any age, but starting to budget when you are young will make it that much easier to carry the habit into the future.  Choose an online website (such as Mint.com) that will make your job of budgeting easier.  These online tools allow you to link your bank accounts and credit cards and will begin tracking and categorizing all of your transactions for you.  You’ll want to review your total income vs. spending periodically to make sure you aren’t spending more than you make.  You’ll be able to set up budgets for individual categories and even get text notifications if you go over your pre-set budgets.

4. Start Saving for retirement as soon as you get your first job. The biggest secret to creating wealth is simple – time.  The sooner you start saving the longer your money will have to grow and compound.  Take advantage of the power of compound earnings over time by starting to contribute to your employer retirement plan the day you get your first job.  Sign up to contribute 10% of your salary directly to your company’s retirement savings plan and you’ll be putting yourself on a strong financial path.  If you delay starting retirement contributions until your 30s or 40s, you will have to contribute a significantly larger percentage of your salary each year to catch up.

5. Always maintain an emergency fund. You should always have 6 months’ worth of expenses set aside in a savings account.  This is the money that will get you through any hard times that you experience.  This could be something like an expensive car repair or an unexpected medical bill.  It could also be something much larger like losing your job.  Having an emergency fund in place will keep you from going into debt when life throws you a curve ball.

6. Manage your risk with insurance. Insurance exists so that you can share the risk of something bad happening with other people.  If you own a car you need to have auto insurance.  If you own a home you need to have homeowners insurance.  However, there are other types of insurance that are not good to have, even if they are not required.  You should consider having renters insurance if you rent a home.  Renters insurance will cover the cost to replace damaged or stolen personal items.  When you get your first job you should make sure that you have disability insurance.  This is insurance that will continue to pay you a portion of your wages even if you are unable to work because of a disability.  Oftentimes you can purchase disability insurance through your employer but you can also purchase it in the private marketplace.  When you reach a point in your life where other people are dependent upon you (for example, a spouse and/or children) you’ll want to make sure that you purchase life insurance to protect them in the event you die young.

7. Avoid lifestyle creep. Decide now that you are not going to live your life trying to “keep up with the Jones’”.  One of the most harmful financial choices people make is to keep expanding their lifestyle every time they get a raise.  This not only means that they save less over their working life, but they also become accustomed to a lifestyle that they won’t be able to maintain in retirement.  Make a promise to yourself now that every time you get a raise you’ll use at least half of it to increase the amount you save each year.

Follow these tips and you’ll have a good (and early!) start towards financial independence.  These early steps are things you can do easily by yourself.  However, you should consider working with a Certified Financial Planner™ to build a financial plan once life starts getting more complicated.  A good time to build a financial plan is at big life milestones, such as getting married, having your first child or getting a big promotion.  A financial planner is skilled at helping you look at the big picture and make good money decisions that will help guide you towards your future goals.


The information being provided is for informational and educational purposes only. It is not intended to provide specific advice or recommendations. All efforts have been made to report true and accurate information.  The information being delivered today is subject to change without notice. For additional information about AHC Advisors (CRD #127364) please visit the SEC Website at www.adviserinfo.sec.gov.  For a copy of the firms ADV Part 2 Brochure, please contact us at 630-762-8185 or e-Mail at info@ahcadvisors.com. Please also see our website at www.ahc.advisors.com