Whether you’re currently in your young adult years or are preparing another young adult for financial responsibility, there are several essential skills and areas of importance to keep in mind when building financial literacy and setting up for success. Everyone starts their financial roadmap without any experience, but that doesn’t mean you can’t come prepared with the basics. Let’s explore what you wish you knew about personal finance.
Learn How to Create (and Maintain) a Budget
This is one of the core foundations of financial stability and growth. Starting out with a budget helps prevent you from letting your spending get out of hand and struggling to cover your expenses. Falling into that trap is an easy way to get yourself into unnecessary debt that can be difficult to come back from.
Budgeting is as simple as understanding how much money you have coming in every month (income) and how much you need to pay in expenses like groceries, rent, car payments, utilities, gas, etc. Once you’ve subtracted all your necessary expenses, whatever is left over can be used for “wants” like entertainment as well as setting aside as much as possible for building your savings.
Nowadays, budgeting can be extremely simple as there are many mobile apps that link with your bank accounts and can help you automate the process.
Understand the Basics of Bank Accounts
Banks and credit unions make it quite easy these days for young adults to open both checking and savings accounts, but it’s important to first understand the core features of these accounts and do ample research before choosing one. For example, young adults need to be aware of any minimum balance requirements, what it means to overdraft and the associated fees, any required service fees, etc. It’s also critical to understand how to access their information and keep up with the status of the accounts on a regular basis to avoid things like overdraft fees.
Save for Emergencies
While it does take time to build up a substantial emergency savings fund, young adults should be fully aware that saving for emergencies is highly important. As opposed to saving for long-term goals like college, buying a new car, etc., an emergency savings fund should only be used for unexpected emergencies like job loss, car repair, medical bills, and so on. These things can happen completely out of the blue, and having even a bit of backup can help save you from a catastrophe.
Build Good Credit History
It’s important for young adults to start building good credit right away, and a good place to start is responsibly managing a credit card. The keyword here is responsibly — improper use of a credit card can result in unwanted and large amounts of debt you have to dig yourself out of. A good rule of thumb is to only spend amounts on your credit card that you know you have in your bank account, and you can pay back immediately. Young adults should be fully aware that bills need to be paid on time, every time to avoid any damage to their credit history.
Talk to a Trusted Expert
Starting a financial journey as a young adult is a big undertaking, but it doesn’t have to be complicated. And while parents and other trusted adults can be a great source of financial leadership, it can also be beneficial to speak to a financial expert, like a banker or advisor. Bankers are a great source of information as you start out, from setting up bank accounts to signing up for credit cards and more. At Republic Bank of Chicago, we’re always ready to help you learn what you wish you knew about personal finance. Give us a call at 800-526-9127 — plus, find a whole wealth of resources to help you get started on our website.
